The software computes and taxes interest annually for accounts with the Ordinary Income tax treatment. And, any interest will increase savings balance based upon the rate of return you enter. Interest income is not used to fund expenses.
If you want more granularity and to account for state tax free interest income, we generally recommend the following:
Navigate to My Plan > Accounts and Assets
Create an account with the Ordinary Income Tax treatment
Set the rate of return to zero
Navigate to My Plan > Income > Pensions
Add a Pension to represent the monthly interest
For bonds that are tax free at the state level, add annual interest as a pension and
select "Federal Only" for taxes
