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Preamble

I would like to open a savings account in one of "Big 5" banks in Canada. Many banks are offering so called "daily savings" accounts.

My calculation

Not to name any names, let say I would like to open a savings account in the bank XYZ. Information on the bank website states that the interest on money calculated at the end of each business day and paid monthly. Thus, if I understand it correctly, the interest (0.05%) is multiplied by the amount of money in the account.

Say, I have deposited $10,000 in my account and not touching them. So, every day $10,000 x 0.05% = $5 of interest accrues. Assuming a month has 4 weeks, 5 working days each, my monthly interest is $5 x 5 x 4 = $100

For every $10,000 deposited in this savings account I should earn $100 of interest every month in this "daily savings" account? Am I understanding it correctly? I don't know why, but it seems overly generous.

I looked all over on the bank website, but cannot find information whether 0.05% is daily or annual interest. This is what worries me. I do suspect that this is an annual rate, but I hate that it is not stated clearly by the bank. Or maybe it is hidden somewhere in a fine print!

Would appreciate if anyone clarify. Thank you!

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    That would be north (no pun intended, eh) of $1200 pet year, meaning 12% interest. Now maybe that’s the going rate in Canada, but more likely 0.05% is the annualized rate. In that case, you need to find a better bank…
    – RonJohn
    Commented Mar 14, 2023 at 5:12
  • That's exactly my understanding! However, the bank doesn't clearly say that it is annualized. Unfortunately, there are only 5 big banks and they all offer more or less same crappy interest.
    – user136555
    Commented Mar 14, 2023 at 5:26
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    BMO explicitly says that the interest is annual: bmo.com/popups/main/personal/bank-accounts/…
    – littleadv
    Commented Mar 14, 2023 at 5:52

1 Answer 1

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Thank to commenters for the hints! I was looking at TD. Here: https://www.td.com/content/dam/tdct/document/pdf/personal-banking/513782-en-1.pdf

they say in 1.1:

Our interest rates are annual rates of interest.

Further down (on p.3):

Interest will be calculated each day as follows: By multiplying your total Daily Closing Balance, up to $1,000,000.00, by the interest rate for the Tier to which your Daily Closing Balance corresponds.

This is what was unclear to me.

Correction (thank you to AKdemy and keshlam and all great people!):

1.3 What other factors affect the interest you earn? Where interest calculates on a daily basis, we base our calculations on a 365-day year.

1.5 When do we pay interest? If you earn interest, we pay the accrued interest for the entire month to your Account on the last Business Day of the month... We do not compound interest on any day or include interest in your Daily Closing Balance until we pay it to your Account.

The annual interest is 0.05%, it is calculated daily (i.e. infinitesimal) and compounded monthly.

Still, what is the point in "daily savings" account, if I earn less then $5 on $10,000 deposited?

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    Why divide by workdays? There are 365 days in a year
    – littleadv
    Commented Mar 14, 2023 at 8:02
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    Point 1.3 in your doc states "Where interest calculates on a daily basis, we base our calculations on a 365-day year." With some details for leap years...
    – AKdemy
    Commented Mar 14, 2023 at 8:30
  • Correction if it is daily compounding, the daily multiplier is the 365th root of the annual multiplier, not 1/365th. (1+dailyrate)^365=(1+yearlyrate), assuming rates are expressed as decimals. Explanation, and applying this to your numbers, is left as an exercise for the student.
    – keshlam
    Commented Mar 14, 2023 at 13:39
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    The point is that most people are bad at math and they fail to realize that daily interest is basically zero interest. It's like using the word "Save BIG!" when retailers discount products. Sorry. I didn't save any money. I just spent money. Less money than full price, but I still ended up with less money than I started with (aka: did not save money). It took a long time to convince the wife...
    – Nelson
    Commented Mar 15, 2023 at 3:30
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    The point is that interest rates used to be more than 0.05%, and then the Federal Reserve fucked it all up back in 2008. Just now, interest rates are going up again, but you have to do your capitalist free-market duty of buying from the best supplier. If one bank is offering 0.05%, don't put your money in that bank, find a different bank. Commented Mar 16, 2023 at 0:19

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