Do banks give us interest even for the money that we only had briefly in our account?

My father has just deposited ₹95,000 in my savings bank account with Indian Bank that I have to pay as fees to my university.

I was thinking of paying the fees 1-2 days later, as I will get interest on the 95 thousand for these days. I know that it would not account to much, but still.

Does this makes sense? Do we get interest in our savings account even when the amount of money was in our account for only a few days?

• In the good old days before computers, banks used to pay interest each month on the minimum balance during the month: made life a lot easier on the clerk whose job was to calculate the interest. These days, although it is claimed that interest accrues each day (true), the bank typically does not have a secret tally of the fractions of a paisa that are earned each day, but rather multiplies the average balance for the month by the monthly rate of interest and credits that amount to the account at the end of the month. So you do get interest on the few days now; previously you did not. – Dilip Sarwate Apr 23 '14 at 17:49
• If the bank is paying 5% annual interest, ₹95,000 will yield about ₹12 a day; at 2%, ₹5 a day. – Malvolio Apr 24 '14 at 8:28

It depends on your bank's terms (which may in turn be influenced by laws and regulations), but most banks calculate interest on a per-day basis, so if you leave the money in the account for more than a day, it will generate interest.

However, it will most likely be so little that you could make more money doing any kind of paid work in the time it took you to write this question...

• I can't speak for "most banks", but mine calculates interest on each day's closing balance: so the requirement is not to "leave money in the account for more than a day" but rather to leave it there overnight (which makes sense, given that they make a great deal of their income from lending my deposit in the overnight money markets). – eggyal Apr 24 '14 at 0:02
• It is usually paid per bank working day only, so e.g. leaving the money over the weekend will not generate interest. – Holger Apr 24 '14 at 8:16

Ditto @MichaelBorgwardt Just to get concrete: I just checked one bank in India and they say they are paying 4% on savings accounts. I don't know what you're getting or if 4% is typical in India, but it's at least an example. So if the bank pays interest based on average daily balance, and you left the money in the bank for a week, you'd get 4%/52 = .077%. So on Rs 95,000 that would be Rs 73.

I live in the US where typical interest on a savings account today is about 1%. So an equivalent amount of money -- I think that would be about \$1,500 -- would get 1/52 of 1%, or 29 cents.

Don't leave the lights turned on while you do the calculations -- you'll spend more on the electricity than you make on the interest. :-)

This suddenly reminds me ... I read a news story a few years ago about a man who was expecting a tax refund check from the IRS of a few hundred dollars, and when the check arrived it was for several million. Well obviously it was a mistake. But he came up with the clever idea: Deposit the check in an interest-bearing account. Promptly contact the IRS, inform them of the mistake, and ask how and where to go about returning the money. Hope that it takes at least a few days for them to figure everything out. Then keep the interest accumulated on the several-million dollars for the time that he had the money. And as he contacted them immediately about the error, they can't say he was trying to hide anything.

It was a nice try, but it didn't work. They demanded he send them the interest as well as the principle.

• Considering the cost of electricity, that really puts the answer in context :P – JFA Apr 23 '14 at 20:19
• 4%? Maybe I should open an account in India – Kevin Apr 23 '14 at 23:08
• And where the hell did you find a 1% savings account in the US? – Kevin Apr 23 '14 at 23:09
• @kevin: the current inflation rate in India is over 6% – Michael Borgwardt Apr 24 '14 at 8:28
• I get 1.04^(1/52)=1.000754529, so 0.075% – Taemyr Apr 24 '14 at 12:21

The other answers demonstrate that you'll receive a paltry amount of money in two days, by comparing to things like wages, the cost of electricity, etc.

But the real point is you're incurring risk by paying late, in particular, the realistic risk of the post office messing up. That's not worth it, and it's this kind of overhead that people usually mess up when trying to optimize their finances. (More commonly, it's "I can save 5 cents by doing this, but there's about a 400% chance I'm going to mess everything else up since I don't have infinite mental bandwidth).

You asked a good and important question, but for your actual situation I must emphasize it's terrible personal finance to risk dropping your books for a superficial optimization.

• The last date to pay fees is after 6 days. – user14689 Apr 24 '14 at 6:27
• @user221287 so pay them now instead of trying to remember it. put the effort you'd put into not paying them now into paying now to make sure you don't run out of effort. – djechlin Apr 24 '14 at 15:53
• Interesting point. There are lots of things one could do where IF you had the record-keeping and the personal discipline to check the schedule, you could make a few extra dollars here and there by waiting until the last minute to pay a bill and that sort of thing. In practice, you have to consider the potential savings against the cost and the probability of screwing up. If I can make an additional 2 cents in interest by not paying a bill until the last moment, but there's a \$30 late fee, then if I mess up 1 time in 1000 I will lose money on the deal. – Jay Aug 1 '14 at 14:31
• You also have to consider the value of your time. If by spending an extra 15 minutes a day monitoring my carefully-planned schedule I can make or save \$30 a month, then I'm spending 7 or 8 hours to earn \$30, or about \$4 per hour. I'd be better off to throw away the schedule and get a part-time job flipping burgers for 8 hours a month at minimum wage. – Jay Aug 1 '14 at 14:34

As mentioned in other answers the interest you make is negligible and the calculations would depend on the bank. In saying that the general trend is calculate daily, pay monthly.

A typical scenario would be that every night at midnight the interest for your account at that point in time is calculated. This occurs every midnight and at the end of the month the sum of those calculations will be added to your account. You could have had several significant transactions pass through your account in one day although if the interest is calculated at a specific point in time some transactions may not contribute to any interest.

These calculations are worth thinking about, even in circumstances of negligible returns, as it could assist when considering combining credit cards with home loan offset accounts so it is not a complete waste of time to understand how interest is calculated. The more you know ;)