Interest Calculations

silentfox

Can somebody please explain how to carry out the following interest calculations using a calculator and what formulas if any are applied;

e.g £500 paid into a regular saver account on a monthly basis over 1 year with a rate of 8%

e.g £10,000 invested in a savings account paying 5% pa and left for 5 years

e.g £10,000 invested in a savings account paying 5% pa and left for 5 years but with an additional £1000.00 added in month 3 of the first year.

Thanks for any help, the more explanation the better.

polybear

If you take a look at The Motley Fool website (https://www.fool.co.uk) they have a savings calculator for doing this for you. Not sure how to do it with a calculator though...

Polybear

SeanW

£500 paid into a regular saver account on a monthly basis over 1 year with a rate of 8%

Assuming all months have the same number of days:

Annual 8%
Monthly = 8% / 12 = 0.67% = 0.0067

£500 will get 12 month @ 0.0067, the next £500 gets 11 month @ 0.0067 and so on.

12+11+10+..1 = (12+1)/2 * 12 = 78

78 * £500 * 0.0067 = £261.13

£10,000 invested in a savings account paying 5% pa and left for 5 years

Annual 5%

£10 000 will get 1 year at 5%, then the sum of this gets another year at 5% and so on.

£10 000 * (1.05^5 - 1) = £2762.82 Interest

£10,000 invested in a savings account paying 5% pa and left for 5 years but with an additional £1000.00 added in month 3 of the first year.

£10 000 gets 5%/12 for 3 months,
£11 000 gets 5%/12 for 7 months, and the sum of this gets 5% for the next 4 years

Paul_Herring

Not sure how useful this sort of thing will be, but I'll try it anyway - 3 tables showing how to do the calculations -

http://spreadsheets.google.com/ccc?key=pNBpCyyhhED0Q0gigGEBkTA

You'll need a google account to access it - when you get there, File > Export to xls and you can open it in Excel, and look at the formulae.

grumbler

silentfox wrote:

Can somebody please explain how to carry out the following interest calculations using a calculator and what formulas if any are applied;

e.g £500 paid into a regular saver account on a monthly basis over 1 year with a rate of 8%

The simplest, but very rough calculation:

£500*12/2*8%=£240 (gross) [£500*n/2*8%*n/12, 'n' is numuber of months]

You can get more correct result with this formula:

£500*6.5*8%=£260 [£500*(n+1)/2*8%*n/12]

See my post #9 in the Regular Savings Accounts discussion .

The exact formula is

1.08^(1/12)=1.00643;
£500*1.00643*(1.00643^12-1)/(1.00643-1)-£500*12=£257

[q=(1+8%)^(1/12); £500*q*(q^n-1)/(q-1)-£500*n]

See 'compound interest-how do I work it out?'

e.g £10,000 invested in a savings account paying 5% pa and left for 5 years

£10000*1.05^5-£10000=£2762.82 (gross)

e.g £10,000 invested in a savings account paying 5% pa and left for 5 years but with an additional £1000.00 added in month 3 of the first year.

£10000*1.05^5-£10000+£1000*1.05^(57/12)-£1000=£3023.62

Here 57=5(years)*12-3;