Calculating daily/monthly interest?

YorkshireBoy

retiredin2011 wrote: »

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

They do compound monthly, yes...as most (all?) providers do with monthly paying interest accounts.


I only know of one savings account provider that compounded daily, and that was Egg.

zerog

Which rate is the actual exact number, 4.89% or 5%?

If 4.89% is the actual rate then AER is 5.0011%
If 5% AER is the actual rate then the simple monthly rate is 4.88895%

This may explain the occasional 1p difference. Also, whether each time interest is added to the account, the rounded figure which is credited is used as the basis for the next calculation or whether the system maintains more decimal places internally.

To the OP, banks probably use a custom FORTRAN or COBOL program for their internal processing given that they keep saying their systems are failing because they are outdated. Excel is written in C++ and uses IEEE 754 64-bit precision which is accurate enough until you become a trillionaire, I don't know if the same is true for bank mainframes since this standard has only been around since 1985 (but Intel processors used it since 1980)

eskbanker

zerog wrote: »

Excel is written in C++ and uses IEEE 754 64-bit precision which is accurate enough until you become a trillionaire, I don't know if the same is true for bank mainframes since this standard has only been around since 1985 (but Intel processors used it since 1980)

Must be true for the bank mainframes too if that's where the bonuses are calculated!

opinions4u

zerog wrote: »

Which rate is the actual exact number, 4.89% or 5%?

If 4.89% is the actual rate then AER is 5.0011%
If 5% AER is the actual rate then the simple monthly rate is 4.88895%

The gross rate is the contractual rate of interest in law. This is the number that a bank should calculate interest against. If it is less than 4.89%, even by a tiny fraction, the bank is not meeting its contractual obligation.

The AER is a marketing requirement which has to be shown rounded to 2 decimal places. This should be calculated from the gross rate, not the other way round.