Calculating daily interest

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  • masonic
    masonic Posts: 23,278 Forumite
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    Robert_Sterling wrote:
    However you seem to have produced a daily rate from a yearly rate by dividing by 365 where perhaps you should have taken the 365th root.
    Both methods give a "daily rate" of 0.01441% to 4 s.f., but I agree with others that interest is normally compounded only after it has been paid (i.e. from month to month, not from day to day).

    Edit: In fact, scratch the above - I missed out a 4 from the 12th root method, which is, in fact, 0.014441%. :doh:
  • Robert_Sterling_3
    Robert_Sterling_3 Posts: 7,112 Forumite
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    Given a number x
    The square root of x is a number y such that y squared = x
    i.e. y^2 = x

    The cube root of x is a number y such the y cubed = x
    i.e. y^3 = x

    The n th root of x is a number y such that y to the power n = x
    i.e. y^n = x

    the 365 th root of x is a number y such that y to the power 365 = x
    i.e. y^365 = x

    ...........................................................................................
    ...............................I have put my clock back....... Kcolc ym
  • Dagobert
    Dagobert Posts: 1,625 Forumite
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    After having read this thread, I checked the interest received from ICICI in September and it tallies with my calcultions:

    On 1st Sep, the account had £4.50
    8th Sep: £34000 received (via BACS payment)
    30th Sep: 108.02 interest received

    7 days @ £4.50
    22* days @ £34,004.50

    The gross interest rate is 5.2708% and in 2005 we have to divide by 365 to calculate the daily interest. Pagan98's formula is correct!

    7 * 4.50 * 5.2708/36500 = £0.004
    22 * 34,004.50 * 5.2708/36500 = £108.029

    *excluding the day on which interest was paid.
    isasmurf wrote:
    I think they may have deducted tax.
    Pagan98 would have noticed as ICICI deduct tax explicitly, i.e. they credit gross tax and deduct the tax amount separately.
    Dagobert
  • Pagan98
    Pagan98 Posts: 162 Forumite
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    Thanks Dagobert. Nice to know it tallies for you. I guess the only thing to do now is await ICICI's explanation for the discrepancy... :rolleyes:

    *excluding the day on which interest was paid.

    I suspect interest isn't accumulated on the day the funds reach the account rather than on the day interest is paid (i.e. one day off at the start rather than at the end but same overall number of days).
  • Dagobert
    Dagobert Posts: 1,625 Forumite
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    Pagan98 wrote:
    I suspect interest isn't accumulated on the day the funds reach the account

    ICICI T&C's (12): Interest is calculated from the business day on which they receive the funds. No interest is paid for money transferred from the account on the day of withdrawal.
    Interest is paid on the last day of the month or on the next business day.

    It seems to be the case that interest is paid for the days up to and excluding the day of interest payment.
    Dagobert
  • Pagan98
    Pagan98 Posts: 162 Forumite
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    It seems to be the case that interest is paid for the days up to and excluding the day of interest payment.

    I agree the T&Cs say that interest is calculated from the business day that funds are recieved. Maybe this is from but not including?; it would seem bizarre to pay interest monthly but pay for 30 September in October. :confused:
  • Dagobert
    Dagobert Posts: 1,625 Forumite
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    Pagan98 wrote:
    I agree the T&Cs say that interest is calculated from the business day that funds are received. Maybe this is from but not including?
    From means including the day the funds are received. Like most banks, ICICI pay interest for the money which is still in the account at the end of the day (therefore excluding the day of withdrawal but including the day of receipt).
    Pagan98 wrote:
    it would seem bizarre to pay interest monthly but pay for 30 September in October.
    Not really. It is not exactly one month's interest anyway, but interest for x days. Interest might be paid a few days later if the end of the month falls on a weekend. It could even be the 3rd of the following month in case of a Bank Holiday w/e.
    And come to think about about it, they can't pay interest for the day the pay interest on because they pay interest for the money which is still in the account at the end of the day. Therefore they can only calculate the interest due for the days prior to interest calculation.
    Dagobert
  • DocProc
    DocProc Posts: 855 Forumite
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    ICICI quote 5.4% AER (5.27% Gross)

    I took my gross monthly interest for September =£X)

    Next, I determined accurately the no. of days the cleared funds were available in the account = Y days

    Next, I determined the amount of cleared capital involved, which had earned that interest = £CAP

    I reckoned X/Y x 365 would then be the interest for a full year =£INT

    In simple terms, therefore, £INT/£CAP x 100 = Gross Interest Rate%

    When I did this calculation, my answer was 5.27%

    I conclude the interest paid to my account was therefore correct.
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