How to calculate interest on savings?

mengles

Hello

Having read your article on interest rate calculations and compounding, should we not have in the computing age, daily compounding of interest. The daily interest should be added to the principal and then compounded daily.
It would certainly stop excess borrowing and we might get a better interest rate!

Never happen

Mike Engles

nzseries1

mengles wrote: »

should we not have in the computing age, daily compounding of interest. The daily interest should be added to the principal and then compounded daily.

AER already includes the effects of compounding interest, so therefore the calculations above are correct.

opinions4u

mengles wrote: »

Having read your article on interest rate calculations and compounding, should we not have in the computing age, daily compounding of interest. The daily interest should be added to the principal and then compounded daily.

Egg compound interest daily on their savings accounts. Although it's not capitalised daily.

It would certainly stop excess borrowing

It would make no difference at all to excessive borrowing.

and we might get a better interest rate!

Ironically, where Egg quote the same rate as a competitor, they will pay less interest on closure of an account because of their compunding daily interest approach. So it effectively pays a lower interest rate.

paws1

Hi Martin
How is the interest calculated on a monthly paid ISA account - for example 3.0% AER paid monthly on £5340.
Also how would it be calculated if monthly (or even random) additional amounts are paid during the year, up to the allowed maximum.
Is it a straight calculation on the total divided into the months or is there any element of compounding until the annual allowance is reached?

Gromitt

Interest is calculated daily and paid either monthly or annually.

gorbyuk

Hi sorry if this sounds lazy but i've been reading the earlier posts and i'm trying to work out the interest i should be getting on a esaver(4) from sanatander the current balance is 4813.17 and the AER is 3.06% gross 2.45% net now if i follow the instructions posted above i should use

i get a totally wrong figure i'm trying to put it into a speadsheet so i can let excel do the hard bit but seem to be failing miserably can anyone help?

I would also like to say how helpful I have found this site to be reading other peoples advice and experiences!

:T

talexuser

try this
in A1 4813.17
in B1 3.06
in C1 =A1*((B1/100)+1)-A1) this is the gross interest
in D1 =C1*0.8 this net interest for basic rate taxpayer

alternatively put 2.45 in D1
in E1 =A1*((D1/100)+1)-A1 for net interest

Derekcgb

Sorry to resurrect an old thread.
My wife and I have a joint account. She is a non tax payer so only I pay tax on our current account interest meaning I think that we pay an effective rate of 10% rather than 20% tax.
If that is so would the formula in D1 become "in D1 =C1*0.9"?

redbuzzard

Yes it would.