How do Savings Accounts Work?

Whether you’re considering opening a bank account for the first time or you’ve been a customer for years, it’s common to wonder how savings accounts work. You probably know the basics: you deposit money into a savings account, and after a certain amount of time, you receive interest. But why do you earn interest on a savings account?

When you deposit money into a savings account, it isn’t just tucked away into a safe. Banks use these deposits for a variety of things—primarily to loan out money to borrowers. They charge the borrower interest on those loans, and give part of that amount back to you, the depositor, in the form of interest earned on your savings account. During this time, however, you still have access to your funds when you need them. Assuming your institution is a member of FDIC, deposits are insured up to $250,000 per deposit or, per insured bank, for each account ownership category.*

Now that you know why you earn interest, let’s talk about how and when you earn interest on a savings account. Each savings account has an Annual Percentage Yield, which is the estimated annual rate of return, including compound interest. This percentage varies depending on what savings account you have, and may also be influenced by factors such as your average daily balance, what other accounts you have with the bank, and where you live. Your rate can also change at the bank’s discretion.

Interest is calculated on your account each day, and if you have a savings account with Santander Bank, credited to your account each month. At the end of each day, 1/365th of your interest rate, which is called your daily periodic rate, is calculated based on your account balance. At the end of the month, the interest that has accrued during that time period is added to your account. This amount will be reflected in your monthly account statement.

An institution may determine the frequency with which interest is compounded and credited on an account, provided that the institution discloses that frequency in the account disclosures. Even if the average daily balance method is used to calculate interest, the frequency of compounding can vary among institutions. Because interest is added to your balance, you earn interest on both your balance and previously earned interest (compound interest).

Santander Bank offers several different savings accounts, with a variety of interest rates and benefits.
Compare savings accounts to determine which is the best fit for you.

*There is a maximum of $250,000 of deposit insurance from the FDIC for each category of account ownership. Please visit fdic.gov for details.