Calculating Interest

Zebra

Someone gave me some money to save for them in my Egg account paying 6.3% - is the interest I owe them (as a basic rate taxpayer) calculated as:

(6.3/100 x 0.8) x (no. days / 364) x amount

oldfella

no - its more complicated - they pay interest daily compounded at 6.11%. If the money was in for a year than it comes to 6.3%, less than a year comes to less than 6.3%.

RayWolfe

Be careful. There could be all sorts of tax and other implications to you "saving" money for another person.

Zebra

oldfella wrote: »

no - its more complicated - they pay interest daily compounded at 6.11%. If the money was in for a year than it comes to 6.3%, less than a year comes to less than 6.3%.

Thanks Oldfella - do you have a formula I could use?

oldfella

no - daily compound is very unusual - suggest look around the web

Reaper

There is a calculator here:

http://www.thisismoney.co.uk/long-term-savings-calculator

Try using the long term lump sum one. It seems to let you put in fractions of a year

sloughflint

Check out the following thread and in particular the last post for a spreadsheet which will contain the formula:

http://forums.moneysavingexpert.com/showthread.html?p=16600829

Reaper

sloughflint wrote: »

Check out the following thread and in particular the last post for a spreadsheet which will contain the formula:

http://forums.moneysavingexpert.com/showthread.html?p=16600829

The spreadsheet can't be altered and the formulas are invisible. You will need to allow more privileges to viewers for other people to use it.

Zebra

Thanks Sloughflint - as Reaper rightly says I can't use the spreadsheet but should be able to use the formulas in #20 of that thread to make my own.

td_007

Zebra wrote: »

Thanks Sloughflint - as Reaper rightly says I can't use the spreadsheet but should be able to use the formulas in #20 of that thread to make my own.

Formula for compound interest is quite straight forward:

M= P(1+r/n)^(y*n)





where M=final amount

P= principal amount


r= rate of interest (8% = 0.08 in formula)
n= compounding interval (1=annual, 12=monthly, 52=weekly 365=daily)
y= number of years

For eg. £1000 compounded daily at 8% for 1 year will total

1000*((1+(0.08/365))^365) = 1083.28
You thus get £83.28 as interest

As basic rate tax payer, subtract 20% from above interest. Thus you get net £66.62

Be aware thought that different institutions use slightly different values for no. of days 365 (normal year), 366 (leap year, but not always), 360 (interest year).

tuggy12

td_007 wrote: »

Formula for compound interest is quite straight forward:
M= P(1+r/n)^(y*n)
where M=final amount
P= principal amount
r= rate of interest (8% = 0.08 in formula)
n= compounding interval (1=annual, 12=monthly, 52=weekly 365=daily)
y= number of years
For eg. £1000 compounded daily at 8% for 1 year will total
1000*((1+(0.08/365))^365) = 1083.28
You thus get £83.28 as interest
As basic rate tax payer, subtract 20% from above interest. Thus you get net £66.62
Be aware thought that different institutions use slightly different values for no. of days 365 (normal year), 366 (leap year, but not always), 360 (interest year).

It depends on how the annual interest is specified.
If the annual interest is specified as 8% APR (which is the usual way), then that assumes compounded interest.
In your example, if you invested £1,000 for a full year at 8% APR, then the principal would grow to exactly £1,080