How is daily interest calculated on savings accounts?
On some bank accounts, it states that interest is calculated on a daily basis.
I’m presuming that means that each day the interest earned for that day is calculated based on the account balance at that time.
If so, how is it calculated?
Do they multiply the balance by the interest rate (to find what the annual interest earned on that amount would be) and then divide it by 365 to find the interest earned that day?
Or is it more complicated like they find the 365th root of the multiplier for the annual interest rate and apply that on a daily basis?
For example, in the latter case if the interest rate was 20% (not realistic but I’m choosing it because the numbers work out nicely), the annual multiplier would be 1.2 and the daily multiplier (to find the interest earned that day) would be 1.0005 – the 365th root of 1.2.
Is it one of these or is daily interest calculated in a different way?
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