Interest accrues daily, but you see it only when the bank deposits it
Your bank calculates how much interest you owe you every single day, based on your balance that day. The calculation is straightforward: it takes your balance, multiplies it by the annual interest rate, then divides by 365 (or sometimes 360, depending on the bank). That gives you one day's worth of interest.
The bank does this calculation every day you hold money in the account. Those daily amounts add up in a running total called accrued interest. But you do not see the money yet—it sits in the bank's system, not in your account balance. On a set date (usually monthly, sometimes quarterly), the bank deposits all that accrued interest into your account at once. That deposit is called posting or crediting the interest.
This matters because your balance grows in two ways: the money you deposit, and the interest the bank deposits. Once interest posts, it becomes part of your balance, and the next day's interest calculation includes it. That is how compound interest works—you earn interest on your interest.
Key Takeaways
- Banks calculate interest daily using your account balance that day, but most accounts post (deposit) that interest monthly.
- The annual percentage yield (APY) you see advertised already accounts for compounding, so you do not need to calculate it yourself.
- Interest accrues even on days you do not touch your account, as long as money sits in it.
- The day you withdraw money, interest stops accruing on the withdrawn amount—the bank calculates interest only on what remains.
How the daily calculation actually works
The formula banks use is: (Balance × Annual Interest Rate) ÷ 365 = One Day's Interest. If you have $10,000 in an account earning 4.5% APY, one day's interest is ($10,000 × 0.045) ÷ 365 = $1.23 per day.
That $1.23 accrues every day you hold the $10,000. After 30 days, you have $36.90 in accrued interest waiting to post. On the posting date (say, the last day of the month), the bank deposits that $36.90 into your account. Your new balance is $10,036.90. The next day, the bank starts calculating interest on $10,036.90, not $10,000.
Some banks use 360 days instead of 365 in the denominator. This is called the "30/360" method or "ordinary interest." It results in slightly higher interest—using the same example, one day's interest would be ($10,000 × 0.045) ÷ 360 = $1.25 instead of $1.23. Most online banks and large institutions use 365 days, but it is worth checking your account agreement if the difference matters to you.
Why APY is not the same as the interest rate you see
Banks advertise two numbers: the annual percentage rate (APR) and the annual percentage yield (APY). The APR is the raw interest rate. The APY is what you actually earn, because it includes the effect of compounding—earning interest on your interest.
If a bank offers 4.5% APR on a savings account with monthly compounding, the APY is slightly higher, around 4.59%. That difference comes from the fact that each month, interest posts and becomes part of your balance, so the next month's interest calculation includes it. Over a year, that compounding adds up.
When you see an advertised rate on a savings account, it is almost always the APY, not the APR. That is the number that matters to you—it tells you what you will actually earn in a year if you leave the money untouched.
What happens to interest when you withdraw money
Interest accrues only on the money that is in the account. The moment you withdraw $2,000 from a $10,000 balance, the bank stops accruing interest on that $2,000. Starting the next day, interest accrues only on the remaining $8,000.
If you withdraw money before the interest posting date, you lose the accrued interest on that amount. For example, if you withdraw $5,000 on the 15th of the month and interest posts on the 30th, you do not receive interest on that $5,000 for the full month. You receive it only for the 15 days it was in the account.
Some accounts have a minimum balance requirement to earn interest at all. If your balance drops below that minimum on any day, the bank may not post interest that month, or may post a lower rate. Check your account agreement for this rule—it varies widely.
How interest rates change and what that means for your account
Banks set their own interest rates and change them whenever they want. Most savings accounts have variable rates, meaning the bank can lower (or raise) the rate with notice, usually 30 days. When the rate changes, it applies to interest accruing from that date forward, not retroactively.
If your account earns 4.5% APY and the bank lowers it to 4.0% on the 15th of the month, interest accrues at 4.5% for the first 14 days and 4.0% for the remaining days. The interest that already accrued at the old rate stays accrued—the bank does not recalculate it.
Some accounts, like certificates of deposit (CDs), lock in a fixed rate for a set term. The rate does not change, no matter what happens in the market. That is the trade-off: you get certainty about your earnings, but you cannot access the money without a penalty.
How often interest posts varies by account type
Most savings accounts post interest monthly, on the last day of the month or on a date set by the bank. Some post quarterly (every three months). A few post daily, though this is rare. Money market accounts often post monthly. CDs post at maturity or on dates you choose when you open the account.
The posting schedule does not change how much interest you earn—it only changes when you see it in your account. Whether interest posts monthly or quarterly, the total earned over a year is the same, because the APY already accounts for the compounding frequency.
You can find the posting schedule in your account agreement or by calling the bank. It is listed under terms like "interest posting frequency" or "crediting schedule."
Why your account balance and available balance might differ
Some banks show two balances: your account balance (also called ledger balance) and your available balance. The account balance includes money you have deposited but that has not fully cleared yet. The available balance is money you can withdraw right now.
Interest accrues on your account balance, not your available balance. If you deposit a check that has not cleared, interest still accrues on it. This is why it matters: if the check bounces, the bank may reverse the interest it accrued on that check.
Most of the time, the two balances are the same or very close. But during the time between when you deposit something and when it clears, they can differ. Your interest calculation uses the account balance, which is why deposits earn interest even before they are fully available to you.
Frequently Asked Questions
Does interest accrue on money I just deposited?
Yes. Interest accrues starting the day the deposit is made, even if the money has not fully cleared. However, if the deposit bounces or is reversed, the bank may reverse the interest it accrued on that amount. For checks, this usually takes three to five business days to clear.
What if I have multiple deposits in one month—does each one earn interest separately?
No. The bank calculates interest on your total account balance each day, regardless of how many deposits you made or when. If you have $5,000 from last month and deposit $2,000 this month, interest accrues on the full $7,000 starting the day the $2,000 posts.
Can I lose interest if I withdraw money right before it posts?
Yes. If you withdraw money before the interest posting date, you lose the accrued interest on that withdrawn amount. Interest accrues only on money that is in the account. Withdraw it, and the accrual stops for that amount.
Why does my interest seem lower than the advertised APY?
The advertised APY assumes you leave money in the account for a full year without withdrawals. If you withdraw money partway through the month or year, you earn less. Also, if your balance varies throughout the month, the average balance determines your interest, not the ending balance.
Do I have to do anything to receive the interest that accrues?
No. The bank deposits accrued interest automatically on the posting date. You do not need to request it or take any action. It appears in your account on the schedule set by the bank.