Cant understand the interest ammount

adamretter

I have a Halifax IASA which is an online savings account. I am trying to understand how they calculate the interest for the month.

Interest is calculated daily and paid monthly. Its 5.13% Gross Per Annum or 4.1% Net Per Annum the bank tells me.
I am trying to understand how they reached the figure for Januarys Interest. Interest is paid on the 30th of each month (usually).

So 30/12/06 Interest was paid for December of £123.79 giving me a balance of £37,149.60

03/01/07 credited £511.87, balance now £37,661.47
22/01/07 debited £333.75, balance now £37,327.72
24/01/07 debited £7,500, balance now £29,827.72

30/01/07 Interest was paid for January of £125.68, balance now £29,953.40

Now to work out the interest paid daily I have done =((1+0.041)^(1/365)-1)*100) in my spreadsheet. I have then taken each days balance, divided it by 100 and then multiplied it by the result of the formula for interest above. These interest figures for each day in the month (30/12/06 to 30/01/07) I have then summed to give me £126.34. But they only paid £125.68.

So obviously I have made a mistake here somewhere...
What am I doing wrong? This is driving me totally crazy, I have tried tweaking many values but dont seem to be able to hit their figure... Help please.

Lokolo

I've done it, yes I am amazing, bow down to me lol im kidding.

Ok 5.13% is actually 4.104% (5.13 * 0.8 = 4.104)

Now to calculate the daily interest I did (AMOUNT/100*4.104)/365

Inclusively:

30/12 - 2/1 = £4.18 daily
3/1 - 21/1 = £4.23 daily
22/1 - 23/1 = £4.20 daily
24/1 - 29/1 = £3.35

add all this up and you get: £125.68 interest

Hope this helps, if you want the spreadsheet that I used to work it out just ask,

Olly

DavidLaGuardia

The reason you got it wrong and Lokolo got it right is that your account is a monthly interest account.
Your own calcultion assumes an annual interest rate that = AER (Annual Equivalaent Rate) calcualted on a daily basis
5.13% on a monthly interest account has monthly interest simply of 1/12 of the rate with daily interest on a simple basis. Because of compounding the true AER is (1+4.104%/12)^12 - 1 = 4.182%.
One must always bear this in mind when comparing the returns of monthly accounts which can be better than other accounts with a higher interest rate.

adamretter

Thanks Olly, from your explanation and workings I can now calculate my interest correctly :-)

David, thanks also - from your explanation I see I still have a lot to learn.

adamretter

Okay so this all seemed to make sense, I did the February calculations and also hit the nail on the head. But now that im in March I seem to be 3 pence out. The bank paid £96.03 but from the calculations explained here I only get £96.00.

March looks like this -

28/02/07 - (interest for Feb just paid) balance £30,564.55
01/03/07 - debit £558.13, balance £30,006.42
02/03/07 - credit £511.87, balance £30,518.29
27/03/07 - debit £245.28, balance £30,273.01
28/03/07 - interest paid for Mar £96.03, balance £30,369.04

Is this a rounding error somewhere? or is the interest rate of 4.104 rounded up or something? Sorry, please help again...

Lokolo

Yep, im stumped too. I calculated it to be exactly £96.

My excel spreadsheet rounds everything to give £96.

Roundup gives £96.23.

So not exactly sure, hoepfully someone will be able to tell you know,

Good luck

Olly

adamretter

hmm I also cant get the right figures for April or May, we must be doing something wrong here :-(

The_Fiddler_2

Is all that effort worth it for 3p?

Lokolo

Urm I suppose it is if you want to forecast. I would do the same tbh.

Only thing I can suggest is emailing them? This is what I did for Egg and they replied syaing they actually compound daily for their regular savings account (which I was very suprised about), so maybe they are doing something different?

YorkshireBoy

2008 is a leap year (which could explain why the error has manifested itself from March 2007 onwards).

Lokolo

Yeh but one days interest for him is about £3 so 3p seems a bit off, its not like its 1/4 or anything.

Hm, April and May as well, I am not sure?

You could go into the bank and ask for a detailed statement? It is a resonble amount of money (I should think?) so I am sure they are willing,

Olly