How to work out AER % on savings ..?

much2much

Hi can any one please tell me how to work out / convert AER % to Monthly interest .... for AER 6.25% ( £ 50,000 ) to Monthly £ ???? for AER 5.75% ( £ 50,000 ) to Monthly £ ??? many Thanks .....

kevgb

This might be of some help to you

http://www.oft.gov.uk/advice_and_resources/resource_base/consumer-regulations/dualcalc/dualcalc/

I'm on a mac so I've no personal experience of it I'm afraid!

Aegis

Since AER = DI ^ 365 (where DI = Daily Interest factor and AER is shown as, eg, 1.0625)

Ln(AER)/365 = Ln(DI)

DI = e^(Ln(AER)/365)

And since MI = DI ^30 (ish)

then MI = [e^(Ln(AER)/365)]^30

Long story short, your monthly interest at an AER of 6.25% is 0.5%, and your monthly interest at 5.75% is 0.46%. On £50000 that would be £249.76 and £230.29 respectively, both values before tax.

For anyone that's interested, the Excel function to work out that monthly interest at 30 days average is =(EXP(LN(A1)/365))^30 to work out a factored AER in cell A1, worked out by dividing the AER by 100 and adding one.

Telegraph_Sam

Aegis wrote: »

Since AER = DI ^ 365 (where DI = Daily Interest factor and AER is shown as, eg, 1.0625)

Ln(AER)/365 = Ln(DI)

DI = e^(Ln(AER)/365)

And since MI = DI ^30 (ish)

then MI = [e^(Ln(AER)/365)]^30

Long story short, your monthly interest at an AER of 6.25% is 0.5%, and your monthly interest at 5.75% is 0.46%. On £50000 that would be £249.76 and £230.29 respectively, both values before tax.

For anyone that's interested, the Excel function to work out that monthly interest at 30 days average is =(EXP(LN(A1)/365))^30 to work out a factored AER in cell A1, worked out by dividing the AER by 100 and adding one.

Surely there is a standard Microsoft Excel function which can be used to calculate AER on savings? IRR???

MarkyMarkD

The answer from Aegis is rather over-complicated.

Actual monthly nominal rate (if paid monthly) for a given AER is worked out as follows:

(1+AER)^(1/12)-1

So an AER of 6.25% gives

(1+6.25%)^(1/12)-1 = 0.5065% or an annual nominal rate of 12 times that i.e. 6.0778%.

So for £50,000 it would be £253.24 per month - rather more then Aegis calculates.

(NB 1+6.25% = 1.0625).

Lokolo

MarkyMarkD wrote: »

The answer from Aegis is rather over-complicated.

Actual monthly nominal rate (if paid monthly) for a given AER is worked out as follows:

(1+AER)^(1/12)-1

So an AER of 6.25% gives

(1+6.25%)^(1/12)-1 = 0.5065% or an annual nominal rate of 12 times that i.e. 6.0778%.

So for £50,000 it would be £253.24 per month - rather more then Aegis calculates.

Bare in mind this thread is almost 2 years old...

kingmonkey

Just to point out that dividing by 12 gives a close enough answer.

sloughflint

Aegis wrote: »

For anyone that's interested, the Excel function to work out that monthly interest at 30 days average is =(EXP(LN(A1)/365))^30 to work out a factored AER in cell A1, worked out by dividing the AER by 100 and adding one.

A simpler equivalent formula would be:
= A1^(30/365)

MarkyMarkD wrote: »

The answer from Aegis is rather over-complicated.

Actual monthly nominal rate (if paid monthly) for a given AER is worked out as follows:

(1+AER)^(1/12)-1

So an AER of 6.25% gives

(1+6.25%)^(1/12)-1 = 0.5065% or an annual nominal rate of 12 times that i.e. 6.0778%.

So for £50,000 it would be £253.24 per month - rather more then Aegis calculates.

.

Aegis gave the correct amounts.
30/365*0.06778*50000= £249.77

MarkyMarkD

No, Aegis did not give the correct amounts. The average number of days per month is not 30, it's 365/12 = 30.416667.

If you use Aegis' formula, and the correct average number of days, you get my answer.

Garbage in, garbage out.

sloughflint

MarkyMarkD wrote: »

No, Aegis did not give the correct amounts.

Aegis quite clearly stated what number of days their approximation was being based on. You are simply basing yours differently. No more or less correct.

MarkyMarkD wrote: »

The average number of days per month is not 30, it's 365/12 = 30.416667.

If we are talking averages then Kingmonkey was bang on with the right idea. Why is everyone here overcomplicating things?

MarkyMarkD wrote: »

If you use Aegis' formula

If I was looking for an accurate figure then I wouldn't normally particularly as rates are usually provided by the bank for monthly paying accounts.

If they are not, I have got into the habit of obtaining the annual monthly rate just as you did 12*{[(1+a)^1/12]-1},proportion on a month by month basis( eg 28/365 for Feb) then multiply by the previous month's balance that might already include some interest.
( for an account that doesn't fluctuate on a daily basis of course)

If people prefer Aegis' formula ( without natural logs) then for non fluctuating accounts,they should do:

previous month's balance* [1.0625^(n/365)]-1} where n is the number of days in that particular month.

Rather than garbage in garbage out, I'd say swings and roundabouts and overly complex.

As an afterthought, I even wonder if the £ sign in the OP was a red herring and they were merely after the rate for accounts where this is not published. In which case,that's been answered too.

MarkyMarkD

sloughflint

You can't say that it's "no more or less accurate" to pretend the average month is 30 days. That would be 360 days in a year - which is clearly garbage.

Equally well, the full interest earned in a year using Aegis's poor approximation is too low by 5/365 which is more than 1%.