How to work out the interest i may acrew

mumbles27

To Forum;


Can anyone tell me how to work out interest? if something says 3% AER, how would i work that out saying i put £1000 somewhere and didnt add or take away from that amount, only acrewed interest on it

lisyloo

for exactly a year, the calculation is

£1000 * 3/100 = £30

If this isn't in an ISA, then you may have to pay income tax on this amount.
If you pay income tax at 20% you will have to pay 20% (which is £6). This will be automatically taken by the bank unless this is an ISA account.

danothy

If you're referring to savings then the bank account board is probably a better place, nevertheless:

AER stands for Annual Equivalent Rate and is uses to show the rate of growth over a year after the compounding effects of (for example) daily interest have been taken into account, so the work has been done for you, you just need to multiply the balance by the rate.

Using your example: £1,000 x 1.03 = £1,030 after a year before tax, so £30 in interest accrued. Assuming a basic rate of tax the total would be £1,024 after deductions (give or take a few pence depending on the rounding if the interest is credited and the tax deducted more than once a year).