How Do Banks Calculate Annual Interest?

Banks provide lower interest rates on savings accounts and give none whatsoever on current accounts. They provide higher interest rates on term deposits as these amounts remain with the bank for longer periods of time. In a term or fixed deposit, the calculation of interest is fairly simple as it is on a fixed amount of money for a fixed time period. In what are known as savings accounts in the east and current accounts in the west the amount of interest paid by the bank is nominal.

Since a person can deposit and withdraw money at will, the interest that is earned is only on that amount that remains with the bank and for the duration it remains there. Current accounts, as they are known in the west, or money market accounts do not earn any interest whatsoever.