Interest Calculation

glentoran99

Something I cant get my head round, Which is hopefully an easy question to answer.


If I have a savings account with lots of ins and outs how is the interest calculated when its paid yearly?


What total do they work of to calculate the interest? is it just whats in the account at the time the interest is paid?

d70cw6

calculated on the balance daily i expect.

Ballard

The bank will have a cut off time every evening and the interest is accrued on that figure. The account record will have a field for accumulated interest and the newly calculated days interest is added to it.

On settlement date the total accrued interest is credited to the account.

It's likely to be a little more complicated than that as I've worked with one system that kept the closing balance for each account separately just in case an entry was back valued whereupon the whole period was recalculated.

LXdaddy

In simple terms the balance at the end of each "day" is used to calculate a day's worth of interest and that is added to a field holding the accrued interest. If interest is payable at the end of a month or the end of a year or the end of three years (whatever) the accrued interest number is used as the interest to be credited and the accrued interest is reset to zero.


There is probably quite a few decimal places on the accrued interest field to account for the very small amount of interest that is accrued each day.

AnotherJoe

glentoran99 wrote: »

What total do they work of to calculate the interest? is it just whats in the account at the time the interest is paid?

That would be a good trick. Just move £25k in for a day to get the interest on it for a year then back out again.

glentoran99

AnotherJoe wrote: »

That would be a good trick. Just move £25k in for a day to get the interest on it for a year then back out again.

Damn folied by those pesky kids

glentoran99

thanks folks, I thought it would be daily but couldn't find it anywhere

eskbanker

AnotherJoe wrote: »

That would be a good trick. Just move £25k in for a day to get the interest on it for a year then back out again.

To most on here that's a humorous comment but many posters have apparently thought it worked that way, especially for ISAs ("can I fill it up just before year-end?" and the like!)

Pincher

On the other hand, dividends DO work that way.

I know it's supposed to drop next day when it goes ex-dividend, and you lose the 0.5% stamp duty. And there's a buying and selling fee.

The random ups and downs could easily drift up when it goes ex-dividend, so there is scope for get the dividend AND sell at a profit.

Having your cake and eat it.

Yet another sweet dream from the napping Pincher.

AnotherJoe

Pincher wrote: »

On the other hand, dividends DO work that way.

I know it's supposed to drop next day when it goes ex-dividend, and you lose the 0.5% stamp duty. And there's a buying and selling fee.

The random ups and downs could easily drift up when it goes ex-dividend, so there is scope for get the dividend AND sell at a profit.

Having your cake and eat it.

Yet another sweet dream from the napping Pincher.

Yeh, I just looked at some shares i got a nice dividend on the other day (Taylor Wimpey) if you look at the price just before it goes ex-dividend it rises, then after the ex-div date it falls, by pretty much the amount of the dividend. Add in stamp duty and buy/offer spread and dealing costs and as you say "dream on" another nice theory ruined by ugly facts. :cool:

kingrulzuk

BOS manager told me that interest is paid daily and cut of time is at 5pm weekdays but I did not ask him what about the weekend.