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Ask Dr. Don

In search of a bank

Dear Dr. Don,
Is there any bank in New Jersey that offers daily compounded interest for a savings account?
Flora Finance

Dear Flora,
Finding a bank in New Jersey that will compound interest daily on your savings account isn't a problem. I'm just not sure why you have this as a goal.

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You can shop rates on Bankrate for CDs and money market accounts in your area. The results will tell you the compounding method that the bank uses for that type of account along with the annual percentage yield.

In comparing two accounts with the same nominal interest rate, the account that pays interest more frequently will have the higher annual percentage yield. That's because when interest is paid into the account, the interest payment starts earning interest too, increasing the account's annual percentage yield.

Unless you have a lot of transactions in the account, which cause the balance to fluctuate a lot, compare accounts on the basis of annual percentage yield rather than by the compounding method. A higher nominal rate with less frequent compounding can be the better deal.

Don't lose sight of the monthly fees and minimum balance requirements when deciding where to invest your money.

-- Posted: May 16, 2002

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