We're aware that some users are experiencing technical issues which the team are working to resolve. See the Community Noticeboard for more info. Thank you for your patience.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!

Failing to understand appeal of regular savers

Options
12357

Comments

  • Ballard
    Ballard Posts: 2,980 Forumite
    Tenth Anniversary 1,000 Posts Name Dropper Combo Breaker
    Kumquats wrote: »
    I don't think it's really fractal, per se. I guess there is some self similarity because the derivative is proportional to the function? Erm, I'm not sure... I don't think that counts as fractal.

    So if X is how much money you stick in at time t=0 (time measured in years), at annual interest alpha (in our case = 1.06), then at time t your original X is now worth
    X * alpha^t.

    For the total, you'd just sum up over the different X and different t.

    Now I am confused about why banks don't do this, because that seems pretty inexpensive to calculate (but I don't actually know how long it takes to calculate e^x to decent precision, i.e. how fast does the Taylor expansion converge)

    I can't quite make my mind up whether you have some mathematical knowledge but not enough to grasp the whole picture or you're simply posting garbage for your own enjoyment but I'm bored of it now.
  • bigadaj
    bigadaj Posts: 11,531 Forumite
    Ninth Anniversary 10,000 Posts Name Dropper
    Half term?
  • LXdaddy
    LXdaddy Posts: 693 Forumite
    Tenth Anniversary Combo Breaker
    Kumquats wrote: »
    I don't think it's really fractal, per se. I guess there is some self similarity because the derivative is proportional to the function? Erm, I'm not sure... I don't think that counts as fractal.

    So if X is how much money you stick in at time t=0 (time measured in years), at annual interest alpha (in our case = 1.06), then at time t your original X is now worth
    X * alpha^t.

    For the total, you'd just sum up over the different X and different t.

    Now I am confused about why banks don't do this, because that seems pretty inexpensive to calculate (but I don't actually know how long it takes to calculate e^x to decent precision, i.e. how fast does the Taylor expansion converge)

    I think you are way overthinking this.

    We've been talking about theoretical cases where the periods are all the same and the frequency of deposits are all the same.

    In the real world of the bank account there is no consideration of working out the compound interest. All they do is work out the interest payable at the end of each period and credit that to the account. At the end of the following period they will work out the interest due in that period based on the balances in the account during the period - no reference to how much interest was credited last month.

    Remember that in the general case the account might have any number of credits or debits during the month so it's not as simple as taking the opening balance and adding a "period"'s worth of interest.

    I imagine that the banks program is doing something along the lines of...
    • find the closing balance on each day of the period and sum them together
    • calculate the average balance during the period
    • calculate the interest payable as the avg balance * number of days * daily interest rate%
    This can be simplified to
    sum of each day's closing balance * annual interest rate / days in year
  • Ballard
    Ballard Posts: 2,980 Forumite
    Tenth Anniversary 1,000 Posts Name Dropper Combo Breaker
    Banks don't average out balances for a period. The interest will accrue on the closing balance each day and will settle on the interest payment day.

    On the off chance that anyone is interested: On systems that I've used there are a couple of fields on the account record. One for credit interest and another for debit. Every day the interest is calculated, the field is updated and an entry is passed for the days accrual between the banks internal account for 'accrued interest' and a P&L account. When the interest is settled an entry is passed between 'accrued interest' and the customer's account.
  • Ballard wrote: »
    I can't quite make my mind up whether you have some mathematical knowledge but not enough to grasp the whole picture or you're simply posting garbage for your own enjoyment but I'm bored of it now.

    >99.9% probability I have more mathematical knowledge than you.

    Also kind of posting garbage. But I'm genuinely really surprised that no one finds this interesting.
  • Ballard wrote: »
    Banks don't average out balances for a period. The interest will accrue on the closing balance each day and will settle on the interest payment day.

    On the off chance that anyone is interested: On systems that I've used there are a couple of fields on the account record. One for credit interest and another for debit. Every day the interest is calculated, the field is updated and an entry is passed for the days accrual between the banks internal account for 'accrued interest' and a P&L account. When the interest is settled an entry is passed between 'accrued interest' and the customer's account.

    Interesting. I guess I don't know what "accrue" means: do you mean they just keep adding to a total, I guess in the "debit/credit interest" field? Is the accruing done linearly (i.e. each day you get (annual interest percentage*balance)/365?)

    What is a P&L account? I don't know what
    "an entry is passed for the days accrual between the banks internal account for 'accrued interest' and a P&L account"
    means.
    I guess I'm not sure what you mean by "passed".

    I guess when the interest is settled the"debit/credit interest" field is added to the customer's account, then the "debit/credit interest" field is set to zero again?

    I am surprised they do it like this. Very interesting!
  • mgdavid
    mgdavid Posts: 6,710 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    Kumquats wrote: »
    Interesting. I guess I don't know what "accrue" means: do you mean they just keep adding to a total, I guess in the "debit/credit interest" field? Is the accruing done linearly (i.e. each day you get (annual interest percentage*balance)/365?)

    What is a P&L account? I don't know what
    "an entry is passed for the days accrual between the banks internal account for 'accrued interest' and a P&L account"
    means.
    I guess I'm not sure what you mean by "passed".

    I guess when the interest is settled the"debit/credit interest" field is added to the customer's account, then the "debit/credit interest" field is set to zero again?

    I am surprised they do it like this. Very interesting!

    Instead of guessing you should do some research and thinking and then start dealing with facts - you will find life easier in the longer term.
    The questions that get the best answers are the questions that give most detail....
  • mgdavid wrote: »
    Instead of guessing you should do some research and thinking and then start dealing with facts - you will find life easier in the longer term.

    Usually the most efficient way to learn is to talk to a human.
  • B_G_B
    B_G_B Posts: 502 Forumite
    I will stand corrected, but it seems to me that some people have been educated far beyond their ability.

    In answer to the OP’s original post…..

    "Failing to understand appeal of regular savers"

    My answer….

    They give me more dosh.

    For those less educated than me, I have provided links below.
    I hope that they are of help.

    https://www.google.co.uk/#q=they+definition
    https://www.google.co.uk/#q=give+definition
    https://www.google.co.uk/#q=me+definition
    https://www.google.co.uk/#q=more+definition
    https://www.google.co.uk/#q=dosh+definition
  • LXdaddy
    LXdaddy Posts: 693 Forumite
    Tenth Anniversary Combo Breaker
    Ballard wrote: »
    Banks don't average out balances for a period. The interest will accrue on the closing balance each day and will settle on the interest payment day.

    On the off chance that anyone is interested: On systems that I've used there are a couple of fields on the account record. One for credit interest and another for debit. Every day the interest is calculated, the field is updated and an entry is passed for the days accrual between the banks internal account for 'accrued interest' and a P&L account. When the interest is settled an entry is passed between 'accrued interest' and the customer's account.

    Thanks Ballard - makes sense so "my" formula should be changed to
    sum of (the day's closing balance * annual interest rate / days in year)
    And obviously the bank would want to accrue (ie keep track of) how much interest has been earned but not yet paid as their liability (to their customer) has increased. (we are talking current/saving accounts here)
This discussion has been closed.
Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 351K Banking & Borrowing
  • 253.1K Reduce Debt & Boost Income
  • 453.6K Spending & Discounts
  • 244K Work, Benefits & Business
  • 598.8K Mortgages, Homes & Bills
  • 176.9K Life & Family
  • 257.3K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16.1K Discuss & Feedback
  • 37.6K Read-Only Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.