Interest does not compound at the moment, we only pay interest on new deposits, so if you deposit 1 BTC you will have 1.061 BTC after a year, but you'll still only be earning interest on 1 BTC.
When you withdraw, you are withdrawing from your principal first. If you have 1 BTC deposited, 0.1 BTC earned as interest, and you withdraw 0.1 BTC, your earning balance will be 0.9 even though your balance is still 1 BTC. If you withdraw the full 1.1 BTC, your earning balance will be -0.1 so you would have to deposit more than 0.1 BTC to start earning interest again.