HELP:Calculating Interest

RayWolfe

All the drip-feed accounts will give you an interest of aproximatly half what you would get if you were able to deposit the total amount at the beginning. The exacr amount will vary dependining upon when, in the month, you put the money in.
Think of it like:
1st deposit 10% for 12 months
2nd deposit 10% for 11 months
etc
but the rule of thumb is rate of interest * years deposits / 2

Colxfile

Now, for the monthly version, you need the AER. But the calculation is still recognisable:

FV = X * ( [ [1 + i] ^ n] - 1) / i(12)

Where:
X is the Annual amount invested (So, multiply the monthly instalment by 12.)
i is the annual rate of return.
i(12) is the monthly paid rate that, when compounded, gives the annual rate i.
n is the number of years that the investment runs. (eg 18 months = 1.5 years)

Answer:
For £250 a month, at an annual rate of 10% (Approx 9.57% AER) for 12 months:

FV = 3000 * ( [1.1 ^ 1] - 1) / 0.09569...
FV = 3000 * 0.1 / 0.09569...
FV ~ £3135.13.
(Which is quite close to Ray's rule of thumb)

Assumptions:
* No deductions for tax, (or that they are the nett returns)
* The interest rate does not change.

yellow_banana

Many thanks Colxfile & Ray, much appreciated. I'll now go away and have a play with some figures.
Signed.... not now so puzzled! GN

BSingh

Hello Yellow Banana,

just thought i'd let you know that this week, I have been doing the exact same thing that you are trying to work out! i.e. how much interest I will be getting from the A&L regular savings account. I rang them up and they told me £156 at the end of the year.

But... I was searching around on the internet for some 'interest calculators' and a couple... (strangley, some of them give different results) but play around with them and let me know what you think!

There are some links in my previous post:

http://forums.moneysavingexpert.com/showthread.html?t=326262

Good Luck

designking-1

Hello,
I will not go into a discussion as to whether or not this is a good or bad rate. This reply is simply to illustrate the calculation.
Interest on accounts is actually calculated on a daily basis.
To use your figures, you quote an annual interest rate of 1.04 (4 per cent). What you have to do is find a number that when it is multiplied by itself 365 times (365 days in a year) it gives you 1.04.
i.e. you need the 365th root of 1.04.
If you have a scientific calculator with logarithmic functions all you have to do is this...Log 1.04. Divide by 365. Anti-log the result. This result is 1.000107459.
So, on a daily basis your £1000 will earn 10.7 pence. (£1000 x 1.000107459 - £1000.)
To do this for a monthly basis, replace the 365 in the above calculation by 30 (30 days in the average month). This result is 1.00130821. So, on a monthly basis your £1000 will earn £1.31.
This calculation can also be performed on the scientific calculator built into Windows. Replace the 'anti-log' by 'inverse' & then 'log'.
Regards
Designking-1

Lokolo

Thats overly complicated. Just work out Annual interest and /365, gives daily, then * by number of days you want, so 30 for each month. So much easier!

Meltdown_2

designking-1 wrote: »

Hello,
I will not go into a discussion as to whether or not this is a good or bad rate. This reply is simply to illustrate the calculation.

Er, who are you replying to?
The previous post on this thread was over 16 months ago...

Aegis

designking-1 wrote: »

Hello,
I will not go into a discussion as to whether or not this is a good or bad rate. This reply is simply to illustrate the calculation.
Interest on accounts is actually calculated on a daily basis.
To use your figures, you quote an annual interest rate of 1.04 (4 per cent). What you have to do is find a number that when it is multiplied by itself 365 times (365 days in a year) it gives you 1.04.
i.e. you need the 365th root of 1.04.
If you have a scientific calculator with logarithmic functions all you have to do is this...Log 1.04. Divide by 365. Anti-log the result. This result is 1.000107459.
So, on a daily basis your £1000 will earn 10.7 pence. (£1000 x 1.000107459 - £1000.)
To do this for a monthly basis, replace the 365 in the above calculation by 30 (30 days in the average month). This result is 1.00130821. So, on a monthly basis your £1000 will earn £1.31.
This calculation can also be performed on the scientific calculator built into Windows. Replace the 'anti-log' by 'inverse' & then 'log'.
Regards
Designking-1

That would be for compounded daily interest. Most interest is calculated daily and paid annually or monthly, so it's not the 365th root of the interest rate that you want. Instead you want 1/365 times the gross interest rate.

koalabear_3

Oh dear I think I've gone to the Japanese version of mse!! Think i'll just pop back to the English version I can understand lol

loobiloo

I wonder if someone could help me please.
I have £34,000 invested with Kaupthing - gross interest is 6.31, net is 5.01%

I have £89 monthly interest which seems very little to me.

I understand from Kaupthing that the calculation is:

34,000 divided by 100
Multiply that by 6.31%
Multiply that by 12
Then deduct 20%

which I work out at being £257, not £89.

Can anyone advise me please?

yours, mathematically challenged from Brighton