Savings accounts are beneficial, as you earn interest on your money. The deposits you make also benefit financial institutions, as they can lend out the funds to other customers to boost profits. And the more you deposit, the more funds they have available to lend to others, hence the reason for paying interest as a way to convince you to save more.
But when is the interest paid on savings accounts? Keep reading to learn the answer to this question, along with ways to monitor and maximize your interest earnings.
The Importance of Interest in Savings Accounts
The interest rate you receive determines how much your savings grow over time. There are two types of interest to be aware of: simple and compound. More on these shortly.
Overview of Savings Account Interest
Interest in savings accounts is a key factor to consider when you choose where to keep your money. Interest rates affect how much your savings grow, while the way interest is calculated impacts your total earnings.
Types of Interest: Simple vs. Compound
Simple interest is only calculated on your initial deposit. However, compound interest is calculated on your initial deposit and any interest you accumulate over time. Interest can compound daily, monthly, quarterly or annually – the more frequently it compounds, the more you earn.
Understanding Annual Percentage Yield (APY)
The annual percentage yield (APY) gives you a more concrete idea of how much your deposit can potentially grow. It’s a representation of the interest you earn over a one-year period, and it factors in compounding interest.
To illustrate, if you have three savings accounts that compound daily, quarterly and monthly, the APYs wouldn’t be the same.
When Do Banks Pay Interest on Savings Accounts?
Interest on a savings account is usually paid monthly. As previously mentioned, the amount will depend on the compounding frequency.
Typical Interest Payment Schedules
Below is a closer look at the schedules banks use to pay interest on savings accounts.
Monthly Interest Payments
Again, most banks pay interest on savings accounts monthly. So, when the month ends, the interest you’re owed is calculated and added to your savings balance.
Quarterly Interest Payments
If the bank pays interest quarterly or every three months, it is added to your account at the end of this period. It could take a bit longer to see the growth in your savings balance with quarterly payments than you would if interest is paid monthly.
Annually Compounded Interest
As the name suggests, annual compounded interest means interest is paid on your savings once a year. This approach is relatively uncommon, although some banks still use it.
Factors Influencing Interest Payment Timing
The timeline in which banks pay interest depends on their policies, account terms and conditions, and the minimum balance requirements.
Bank Policies
Banks have policies regarding interest payments that specify intervals at which interest is calculated and paid. Even if a bank offers interest that compounds daily, it may still wait to pay it out monthly.
Account Terms and Conditions
The terms and conditions of your savings account also outline how interest payments are structured. Again, each bank sets different rules on payment intervals, but some also offer flexibility in interest payments based on deposit volume and transaction frequency.
Minimum Balance Requirements
It’s not uncommon for savings accounts to come with minimum balance requirements that impact the timing of your interest payments. If your account balance falls below the minimum threshold required to earn interest, you won’t receive a payment for that period.
Examples of Bank-Specific Payment Schedules
Major U.S. Banks
- Bank of America: Monthly
- Chase: Monthly
Online Banks
- Ally Bank: Daily
- Discover: Daily
Credit Unions
- Navy Federal: Monthly
- Pentagon Federal: Monthly
How to Monitor Your Interest Earnings
It’s relatively easy to keep tabs on the money earned on your savings. You can refer to your bank statements, use online banking tools or sign up for mobile banking notifications.
Reviewing Bank Statements
This is the most straightforward way to monitor interest earnings. Bank statements display the amount of interest accrued over each statement period.
Using Online Banking Tools
The bank’s online dashboard may also have a place to view your account activity, including interest payments. You may also have access to a calculator that shows projected future earnings based on your current balance.
Mobile Banking Notifications
Most banks let you sign up for mobile banking notifications that are sent directly to your smartphone. They can alert you of balance charges or interest payments to your account.
Conclusion: Maximizing Your Interest Earnings
If you want to make your savings work harder for you, consider these tips.
Choosing the Right Type of Savings Account
With so many savings account options to choose from, you want to be strategic when selecting yours to ensure you earn top dollar on your money. Start by deciding if a traditional or high-yield savings account fits your needs or if a money market account is more suitable.
Also, pay attention to the fine print to determine if there are monthly service fees, minimum balance requirements, minimum opening deposits or other terms and conditions that come with the accounts you’re considering. Ideally, you want an account that pays an attractive APY and skips the pesky fees and minimum balance requirements.
Comparing APYs Across Banks
Building off the last point, the APY on the account you select should be competitive. It’s not the only factor to consider, but it plays a major role in how much you’ll earn on your savings over time. Of course, you want to make sure the account isn’t riddled with fees that can place a dent in your savings balance.
Utilizing High-Interest Savings Accounts
Again, a high-yield savings account could be the way to go. You may be subject to more stringent terms and conditions, like minimum opening deposit and balance requirements. And it may come with a monthly fee that can be waived if certain conditions are met. Still, these accounts have generous APYs that could make them a good fit to help you meet your savings goals faster.
FAQs on Savings Account Interest
Most pay monthly, but some choose to make quarterly or annual interest payments on savings accounts.
Yes, the interest payment schedule can change at any time, and the bank will typically notify you before it happens.
Savings accounts come with variable rates that can change over time. If rates trend upward, you’ll earn more on your money. But if they go in the other direction, your interest earnings will also follow suit.
