Interest calculations

Thomask

Hi

I'm looking to invest $20,000NZD and need your help in finding the most benefical way of doing this!

The options I'm considering:

1. Invest $20,000NZD for 12 months at 8.75% gross. Interest to compound quartely into same investment.

2. Invest $20,000NZD for 12 months at 8.75% gross. Interest to be paid monthly into an account earning 7.75% gross (will remain at this rate).

3. Invest $20,000NZD for 12 months at 8.90% gross. Interest won't compound and will be paid on maturity.

For your calculations please assume I won't require access to the money and that I'm seeking the best return on investment after the 12 months.

Thanks for your help

Milarky

The 'gross' rate is 12 times the monthly rate or 4 times the quarterly rate. So the toss up is between

leaving it where it is for 12 months
8.90%

Having interest compounded quarterly within the account
1.021875 x 1.021875 x 1.021875 x 1.021875 = 9.04%

Monthly interest but no compounding. Transfer for simple interest in second account

8.75% + 66/144ths of 12 payments of (8.75%/12) all times 7.75%

that is

8.75% x (1 + [66/144]x0.0775 ) 9.06%

[What about tax - what rate is applied and when is it taken from the payments?]

Thomask

Ok, tax will be the same in all 3 scenarios (will either be 2 or 10%).

Thomask

Anybody able to help?

Milarky

'1' - leaving it in the account (at 8.90%) for 12 months with no compounding is slightly worse than either of the other options. The difference between the other two makes it a toss-up IMO.

10% tax reduces the '8.90' to 8.01 net

10% tax reduces 2.1875% per quarter to 1.97% and this grows to 8.11% net

10% tax reduces the third option from '8.75'/12 to '7.875'/12 and '7.75' to '6.975' and so reduces the original '9.06' to '8.13'

So assuming 10% tax the order is still '3' '2' and '1'

Thomask

Sorry, I'm a little confused.

Which is the more profitable choice?

Thomask

Bump.. anyone !!

LittleVoice

Milarky suggests Option 1 of your original post is the best.

Given you are not writing about Pound Sterling amounts, you can do your own sums on the nett (after tax) sums.

Thomask

The rates quoted are annual, yes.

Thomask

Can anyone help?
Thanks

Thomask

I've been given two answers, 1 and 3.

So I'm seeking clarification.

Thanks