Savings accounts are a good place to keep money when you need quick access and liquidity. You generally would not use a savings account for long-term investment accumulation but rather for emergencies and a place to keep your money temporarily before you make a more long-term investment decision. Although savings accounts provide a minimal amount of interest, because of the generally quick turnover of funds, the interest rates are usually quite low compared to other types of investments.
Interest Accrual Defined
Interest accrual means the calculation of interest earned for a given period. Daily accrual means that interest is calculated each day based on the day's starting balance.
Banks set the accrual of savings account interest at their own discretion. A typical accrual period may be daily or monthly. If you need to sign up for a bank savings account, shop around and carefully examine the features of each account type. Because of the relatively low interest paid on these accounts, you should be more concerned with monthly administration charges and fees for ATM use.
Accrual does not mean that your interest is credited immediately. Interest accrual can accumulate and be credited to your account on a different basis, such as every month or every year.
Annual Percentage Yield
Banks provide two interest rates for savings accounts -- the interest rate and the annual percentage yield, or APY. The APY is determined by dividing the savings account interest rate by the frequency of the interest accrual and then applying that result over each period for an entire year. If your savings account interest rate was 1 percent with a daily accrual period, the daily rate would be 0.01 / 365 or 0.00274 percent. The APY would then be calculated as 1.0000274^365 -1, or 1.005 percent.
If your savings account accrues interest daily with an interest rate of 1 percent, your daily accrual interest will equal (0.01 / 365) multiplied by the account balance at the start of the day. For a $1,000 account balance, this would result in an interest accrual of 0.0000274 * $1,000, or 2.74 cents. If interest is credited monthly, at the end of a 30-day month, your savings account would be credited with 2.74 cents * 30, or 82.2 cents, which is rounded down to 82 cents.
Philippe Lanctot started writing for business trade publications in 1990. He has contributed copy for the "Canadian Insurance Journal" and has been the co-author of text for life insurance company marketing guides. He holds a Bachelor of Science in mathematics from the University of Montreal with a minor in English.