Interest calculation

steveksullivan

Can anybody explain why a bank should be paying slightly less than the interest I calculate I should be receiving? I use 'capital X (interest rate /365) X days in the month'

This works TO THE PENNY for most (all ?) of my other accounts  - but one bank consistently pays about 70p less a month. By coincidence I have two accounts with different banks at the same rate, both paid out today,  and the first has paid EXACTLY my calculation (to the penny.....), the other is 70p short. I know its a small amount but I have 5 accounts with this bank started at various times with various amounts in each account  and over a couple of years it will add up.....

Thanks as always for any replies.

EDIT: Just realised that this is a leap year so  interest rate/366 X days in the month' would be perfectly justified - but then it's still about 60p short !!

jaypers

Are you sure you’re using the Gross rate rather than AER?

steveksullivan

jaypers said:

Are you sure you’re using the Gross rate rather than AER?

Oh yes.... and as I said, two accounts with the same GROSS rate paid out today - as described above.

Sarahspangles

Is interest compounded daily on both?

ColdIron

Interest does not compound daily, only when it's paid

jaypers

Can you give us a specific example of a month with the rate and interest paid etc?

Sarahspangles

ColdIron said:

Interest does not compound daily, only when it's paid

Do I mean calculated? I’m thinking of the difference between mortgages where interest is recalculated daily - so an overpayment is worth making as soon as you have funds - and those where it doesn’t make a difference 

wmb194

Yes, this year's a leap year so some use 366 days.

steveksullivan

wmb194 said:

Yes, this year's a leap year so some use 366 days.

Yes - but as I said in my original post that still doesn't explain the difference ......

ColdIron

Sarahspangles said:

ColdIron said:

Interest does not compound daily, only when it's paid

Do I mean calculated? I’m thinking of the difference between mortgages where interest is recalculated daily - so an overpayment is worth making as soon as you have funds - and those where it doesn’t make a difference 

I think so. Interest is calculated daily but only compounded (or is that discompounded for a mortgage?) when the balance changes. With a mortgage the date of the overpayment is under your control but with a savings account it's periodic, monthly or annually, as determined by the bank or BS

steveksullivan

jaypers said:

Can you give us a specific example of a month with the rate and interest paid etc?

This month:

Atom bank at 5.03% gross - £10,000 balance - paid £42.72
Agrees with my calculation to the penny  - i.e 10000*0.0503/365*31  equals 42.72 exactly.

Gatehouse bank at 5.03% gross  - £10,000 balance - only  paid £42.06

before anyone mentions 'expected profit' vs 'interest'  surely the gross rate is still the same so the calculation should be the same?