Calculating daily/monthly interest?

retiredin2011

2,500 x 4.89%/365 * 31 = 10.40 for 31 days corrected that for you

But that is not what Nationwide do, as per my post.

Nationwide get £10.38 not £10.40.

eskbanker

According to both my calculator and Excel, the simple 2,500 x 4.89%/365 * 31 calculation does come to 10.38!

OP, you said you were using rounding as ROUND(FV(E3,E4,-E2,-E5,0),1), which rounds the answer to one decimal place, so 10.38 would correctly be rounded to 10.4 using that formula. Surely if you want the answer to the nearest penny you need to be rounding to two decimal places, so what happens if you change it to ROUND(FV(E3,E4,-E2,-E5,0),2)?

retiredin2011

so what happens if you change it to ROUND(FV(E3,E4,-E2,-E5,0),2)?

Still the same, £10.40

CLAPTON

retiredin2011 wrote: »

Still the same, £10.40

sorry

using my calculator and also using excel


2500 x .0489 x 31/365 = 10.3828

and

2500 x .0489 x 30 /365 = 10.0479

round as you will

agrinnall

retiredin2011 wrote: »

... so it would appear that Nationwide does not use excel formulas.

I'd be prepared to stake all of your retirement pay that Nationwide (or any other bank) do not use Excel in their core banking processing.

retiredin2011

Nationwide (or any other bank) do not use Excel in their core banking processing

So what do they use?

And what formula do banks use to calculate daily interest?

CLAPTON

retiredin2011 wrote: »

So what do they use?

And what formula do banks use to calculate daily interest?

if the a/c accrues daily interest and capitalises it monthly then
they probably use the formula

2,500 x simple annual interest rate/365 x number of day

so e.g
2500 x .0489 /365 x 31 = 10.3828
rounded will be 10.38

SuperAllyB

retiredin2011 wrote: »

Still the same, £10.40

The FV formula in Excel appears to assume that the interest is calculated and added to the capital daily rather than once a month.

YorkshireBoy

retiredin2011 wrote: »

And what formula do banks use to calculate daily interest?

The one you've already been told about, confirmed by this BBA document...

...interest is calculated by taking the balance multiplied by the annual interest rate divided by 100, multiplied by the number of calendar days that the balance is held, divided by 365 in a normal year or by 365 or 366 days in a leap year.


http://www.bba.org.uk/policy/article/code-of-conduct-for-the-advertising-of-interest-bearing-accounts/banking-codes

Where the "annual interest rate" is the gross p.a. rate (4.89% in your Nationwide FlexDirect account example).

retiredin2011

The FV formula in Excel appears to assume that the interest is calculated and added to the capital daily rather than once a month.

So that is the answer.

Nationwide must only add the interest at the end of the month.

Wife has forbidden me to open any more bank accounts when my 5% ends in April so I am taking that £2,500 and going on another cruise.