how do you calculate EAR?

abi1507

hi everyone,

i have a graduate account with HSBC and have accidentally gone £80 overdrawn for about 2 weeks. the EAR is 9.9%, but i can't find anywhere that tells me how to calculate the amount of interest i will be charged - can anyone help? also, when would the interest be charged?

thanks

benjimoron_2

What's EAR???

I think you mean AER, annual equivalent rate. Basically the difference between AER and APR are so small in this case it's not even worth working out. Basically you'll get charged 10% a year, so on £80 for a whole year would be £8. You've only used it for 2 weeks which is approx 1/25 of a year so 8 divided by 25 equals 32p!!! That's assuming no charges for using the overdraft etc. Interest is probably charged monthly so you'll be charged approx 32p in the next few weeks. I wouldn't lose any sleep over it if I were you!!!

YorkshireBoy

benjimoron wrote: »

What's EAR???

I think you mean AER, annual equivalent rate.

No she doesn't, she means EAR.

Every current account provider explains it on their website/in their T&C's. Here's Yorkshire Bank's definition...

EAR (Effective Annual Rate). The Effective Annual Rate is used to express the cost of borrowing on current accounts. The EAR takes account of the rate of interest charged, the frequency it is levied to accounts and compounding of interest. It does not include overdraft fees and is variable.

OP,

The debit interest will be calculated daily on the overdrawn balance. It will be calculated from the annual rate of 9.9% EAR, and then debited some time later. You should be notified (on a statement) of when they intend to debit it. Probably best to check with HSBC if you want to know beforehand.

The actual amount you will pay will involve a formula (that I'm not clever enough to quote you), but for a rough estimate use...

£80 x 9.9% / 365 x 14 = £0.30

oldwiring

If the headline annual interest rate is 9% but the interest is charged monthly, the formula is ((1+9/100/12)12-1)x100. That would give an EAR of 9.38%. For other interest periods replace the 12 and 12 by the number of payments in a year.

abi1507

thanks everyone, i was worried i was going to get charged much more than that!

benjimoron_2

30p / 32p, it's all the same!