Confused

whitlingham

Hey there

Id be very grateful if anybody out there kindly explained the following to me .

Worked example: If you invest the maximum of £250 per month, a total of £3,000 will be paid into your account during the 12 month term. At 12.00% interest, you would earn £195 gross.

Shouldnt earnings be £360 gross (12% of £3000)

Is gross p.a equal to AER ?

Thankyou

stuartm100

12% is the annual rate, you won't have £3,000 in the account for a full year, you can only earn interest on what's in the account

Aegis

whitlingham wrote: »

Hey there

Id be very grateful if anybody out there kindly explained the following to me .

Worked example: If you invest the maximum of £250 per month, a total of £3,000 will be paid into your account during the 12 month term. At 12.00% interest, you would earn £195 gross.

Shouldnt earnings be £360 gross (12% of £3000)

No, because at the end of 12 months, £250 will have 12 months of interest, £250 will have 11 months of interest, and so on. This roughly evens out to 6.5/12 of the gross interest when monthly compounding is accounted for.

Is gross p.a equal to AER ?

When interest is paid annually, gross p.a. would be equal to AER.

whitlingham

Oh I see ... Is there a way (an equation one can use) to calculate the interest ?
Thankyou so much to both to you.:T I spent ages surfing to find an answer but didnt get nowhere until now.

Mikeyorks

Not really ... if you want to be precise, as you need to work out the daily average in the account?

I do it the lazy way. If you put the money in evenly at £250pm, then there will be £1500 in, on average (12 x £250 / 2). So - £1500 at 12% = £180 gross interest. In practice - the average sum of money tends to be in a little longer than that - hence Aegis' calculation uses 6.5, as opposed to my lazy 6.

Aegis

If you're mathematically minded you can use the Difference Equation

C[N+1] = C[N]^(1+I/1200) + L

Where C[N] is the total capital in the account in month N, I is the gross annual interest rate and L is the monthly contribution total. Using Excel you can set this up so that it reports each month based on the value in the previous month.

Or you can be lazy and do it the way mikeyorks and I explained between us

knights

Hi whitlingham, The A&L regular saver web page gives £ 195.00 gross as your worked example:-

'Worked example: If you invest the maximum of £250 per month, a total of £3,000 will be paid into your account during the 12 month term. At 12.00% interest, you would earn £195 gross'

Maybe thats where you got the figure from?


Anyway Aegis math formula on the last post is correct but so more or less is his post that includes:-

Aegis wrote: »

This roughly evens out to 6.5/12 of the gross interest when monthly compounding is accounted for.

So, 6.5/12 x (12 x £250) x 12% = £ 195.00


regards

whitlingham

Thankyou all .. I think Ill go for the lazy way !

Much appreciated