Understanding interest calculation

AFCChris

Hi there

Can anyone tell me how the interest stuff works? I'm using the calculator on this site and I see how it charges more interest if the charge was longer ago but I can't find anything on this site or any other to describe exactly the way it does this.

I realise that you are obviously owed more interest if the charge was ages ago but I suppose I'm wondering what formula is used to calculate the rate. Some of my earlier charges have interest of nearly 50% but the later ones as more like 0.1%. How does it tie in with the 8% figure being mentioned?

I hope someone knows what I mean in my question? I know loads of people have used the calculator like I have so it must be OK but just don't understand this.

Don't know if I'm being really thick here but appreciate any help

Chris

Beate

I have a very unmathematical mind, so all I can say is that interest accumulates. For example, you get 8% per year on £20, then 8% the next year on £21.60 etc., so the longer ago the charge was, the more interest you get for it.
The 8% is a yearly figure so obviously where the interest period is longer or shorter than a year, a formula is used to calculate daily interest.

AFCChris

Hi Beate

Thanks for your responses on my posts today. I think what you say sounds logical. Let's see if anyone else responds.

Cheers

Chris

Twinkly

AFCChris wrote: »

Hi Beate

Thanks for your responses on my posts today. I think what you say sounds logical. Let's see if anyone else responds.

Cheers

Chris

Beates post is logical for calculating compound interest and he has explained it brilliantly but the calculator doesnt work that way. It works to calculate interest at a statutory rate of 8% per year.

The further back you go the more interest is due. The statutory rate of interest is 8% so £20 x 8% = £1.60. If the charge date is back in 2001 (6 years ago) the interest is payable at 6 x £1.60 = £9.60. This does makes it look as though you are getting 50% of your charge in interest but it isnt really.

The amount of interest due alters slightly by a penny when it gets back to 2004 and I assume that is because of the Leap Year and an extra penny interest has accumulated because of this. Please dont make me show how that is calculated though. I hope that helps

Edited to add. The daily rate of interest is posted somewhere on the site but I cant quite remember where I've seen it sorry and a search isnt helping.

Going to lie down now in a dark room.....

Beate

Twinkly wrote: »

Beates post is logical for calculating compound interest and he has explained it brilliantly

Thanks for the flowers Twinkly but I am a she.

Twinkly

Beate wrote: »

Thanks for the flowers Twinkly but I am a she.

wups sorry

me too, occasionally mistaken for a gay guy...which is fun sometimes :rolleyes:

Edinburghlass_2

You can get the "geeky" answers from Dan the Man in this thread

http://forums.moneysavingexpert.com/showthread.html?t=302097