In the Daily Balance Method, how is interest calculated?

In the Daily Balance Method, interest is calculated based on the balance of the account each day. This approach involves tracking the daily balance throughout the interest calculation period, which is typically a month. By assessing the balance for each day, the calculation can accurately reflect the varying amounts deposited or withdrawn, generating interest proportional to the actual balance held in the account on each specific day. This method leads to a fairer interest calculation compared to methods that only consider the balance at the start or end of the period, ensuring that account holders earn interest on the money they have available throughout the entire month.

Other methods, such as calculating based on the end-of-month balance or the highest balance during the period, do not provide the same level of accuracy in reflecting daily changes, which can impact the total interest earned.