September 12, 2023
It may surprise you to learn that there are many ways to calculate interest; the formula below is just one example. Which formula you use will depend on your business model and your bank partner.
Say you’re the VP of Product at Titan, an investment-management platform. By offering your customers bank accounts, you enable them to manage their cash and investment assets in one place.
Let’s assume that, in your first month, your customers hold $100 million of deposits in your program, and you’ve negotiated a 4% APY (annual percentage yield) with your bank partner. For the sake of simplicity, let’s also assume that the balance in the account remains constant throughout the month (i.e., there are no transactions), and that you receive monthly—rather than daily—interest payments. (article continues below)
Your agreement with your bank partner stipulates that you calculate interest using the above equation. At the end of your first month, you would receive $333,333.33.