How Do Banks Calculate Interest On Savings?

Different banks work on different principles and have different parameters related to interest compounding and crediting. Banks can calculate interest earned daily, monthly, quarterly, half yearly or maybe even annually. This interest is then credited to a persons account in any of the above ways. It is of course beneficial to the depositor to have the interest compounded and the amount credited as fast as possible.

If interest is compounded every month but gets credited every six months the depositor loses out on the benefit of compounding within those six months. On term deposits the interest is generally calculated, compounded and credited in any of the above ways. The interest rates are generally higher but it is important to realize that interest rates fluctuate throughout the year and the best time to deposit the same is when they are at their peak.