How do banks calculate interest on savings accounts? The account balance varies all the time, so what amount is the interest calculated on?

Question

How do banks calculate interest on savings accounts? The account balance varies all the time, so what amount is the interest calculated on?

In: Economics

Answer 1

We have computers. So it is quite easy to calculate what interest per second matches your agreed upon interest per year, and apply your interest calculation constantly to balances current each second.

I would assume it varies wildly from one bank to another as to precisely how they break down when to calculate your interest, and they do either an average balance (if they think people will read the contract) or a minimum balance (if they think nobody will) during each calculation period.