How to work out interest?

masonic

SeanW wrote:

I think you are compounding interest,

If I were compounding interest, my figure would be higher than yours. I think I know what I've done - I am so used to working with monthly interest, I was applying a correction to convert AER to gross, where in this case AER = gross. I wasn't compounding interest, I was de-compounding the AER when I shouldn't have been doing so (you can see from my calculation that I have applied a gross rate of 9.57%, which would have been correct for monthly interest :doh:).

Annie_Fanny

Maths! Arrrrrrrrrrrgggggggghhhhhhhhhhhhhhhhhh!

Nyquist

bloody hell my head hurts.

have read this twice now and get lost around the monthly/ annual bit. still can't get it to work for my sums. i used this thing instead...

http://www.banksite.com/calc/savings

richgirl

Theres a good easy to use savings calculator here -

http://www.moneyforums.co.uk/savings_calculator.php

SeanW

masonic wrote:

If I were compounding interest, my figure would be higher than yours. I think I know what I've done - I am so used to working with monthly interest, I was applying a correction to convert AER to gross, where in this case AER = gross. I wasn't compounding interest, I was de-compounding the AER when I shouldn't have been doing so (you can see from my calculation that I have applied a gross rate of 9.57%, which would have been correct for monthly interest :doh:).

Yes you decompounded the figure, then worked out the interest in a compound method for the year on that figure.

Obviously you are applying a smaller amount each month, but compounding, but I think because of the regular savings, applying a constant rate each month (or day in my case) has the benefit.

masonic

SeanW wrote:

Obviously you are applying a smaller amount each month, but compounding, but I think because of the regular savings, applying a constant rate each month (or day in my case) has the benefit.

I think the corollary here is that for regular savings, two accounts paying monthly vs. annual interest with the same AER will not produce the same amount of interest (in contrast to two accounts with a fixed balance). I guess on thinking about it, that's obvious, because monthly accounts rely on compounding interest to make up the difference between the gross rate and AER: you can't compound what isn't there.