# Calculating Interest

### Distribution

#### How is it calculated?

Accounts accrue interest inherited from the Product configuration and include a configurable user interest rate plus an optional partner margin. Interest is distributed to accounts every day using a compounding interest formula based on end-of-day account balances.

The accrual process involves:

* Interest distribution to accounts.
* Partner margin accrual (optional, defined per Product / currency).

Daily settlement occurs between the partner and Tesseract for outstanding balances.

**Example use case 1:** Partners integrate Tesseract's platform to enable customers to deposit capital into interest-earning accounts.

**Example use case 2:** Partners with available capital but no direct customers can issue a single per-currency account and optionally include partner margin.

#### When is interest distributed to an account?

Interest is distributed to accounts once an accounting day (also known as an accounting cycle) has ended. The accounting cycle runs from 00:00:00–23:59:59 in the partner's timezone. Interest distributes shortly after 00:00:00 the following day. Deposits or withdrawals during any day affect the balance used for interest calculation.

**Example 1** — user earning interest on initial deposit (3.5% APY account):

* Day 1: user deposits 1 BTC (balance: 1 BTC).
* Day 2: user receives Day 1 interest; balance becomes 1.00009425493 BTC.

**Example 2** — user withdrawing entire balance:

* Day 2: user withdraws 1.00009425493 BTC.
* Day 3: no interest accrues (balance at Day 2 end was zero).

**Note on edge cases:** deposits made just before interest distribution still earn interest that day, balanced by withdrawals earning no interest on withdrawn amounts.

### Compounding interest formula

Interest calculation uses a compounding APY method based on total account balance at the previous accounting cycle's end:

```
user_balance(t) * [(1 + interest_rate)^(1/365) - 1]
```

**Example — account with 0.5 BTC**

Day 1 — user deposits 0.5 BTC to a "Basic BTC interest account" with the 3% tier (0–1 BTC balance) and no partner margin. Account balance: 0.5 BTC.

Day 2 — interest calculation:

```
0.5 * ((1 + 0.03)^(1/365) - 1) = 0.50004049 BTC
(earned: 0.00004049 BTC)
```

Day 3:

```
0.50004049 + (0.50004049 * ((1 + 0.03)^(1/365) - 1)) = 0.50008099 BTC
```

Day 4:

```
0.50008099 + (0.50008099 * ((1 + 0.03)^(1/365) - 1)) = 0.500121489 BTC
```