Savings Accounts

How interest is calculated

On a savings account, the amount of interest you will earn usually depends on the amount of money you have in your account at the end of each day. At the end of the month, the financial institution adds up all of the interest it owes you for all the days in the month and pays you the total amount, by depositing it directly into your account.

The financial institution calculates interest on the amount you have in your account, which includes any money you deposited, plus the interest you earned the previous month. This means that, the next month, you will earn interest on the interest that you have already received. This accumulation of interest is called "compound interest" and, over time, it can make your savings grow.

Financial institutions use different methods to calculate the interest they pay on savings accounts. The savings accounts in the tables at the end of this publication use three different methods which we refer to as C1, C2, and C1/C2. These methods are based on different "tiers" or levels. Each tier covers a certain range of money, for example, $0 to $1,000. There is a different interest rate for each tier. The examples on the following pages explain methods C1, C2 and C1/C2.