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oldfella

well, either its 6.3%gross/AER or interest is compounded daily

both statements are not correct

Dagobert

rb10 wrote:

... interest is calculated on a daily compound basis. But this would imply that the AER should be different to the gross rate, which is isn't. (e.g. if it was 6.3% AER, then that would only require a gross rate of 6.11% gross, with daily compounding

Good thinking!

I just did the compound interest calculation and now my result is within a few pence of theirs.

Milarky

oldfella wrote: »

well, either its 6.3%gross/AER or interest is compounded daily

both statements are not correct

Both statement may be correct.

Eg 6.3% = {1+x}^(365) hence 'x' = 0.01673978% daily. However this isn't a 'simple' (daily) rate, it is a genuine compound rate as the following is meant show

Deposit of £100 on 10 May 2008 = 1.0001673978^366 = 1.06318 x £100 on 10 May 2009
Further Deposit of £100 on 10 November 2008 = 1.0001673978^181 = 1.03076 x £100 on 10 May 2009

Now add these up:
£100 ---> £106.32
£100 ---> £103.08 (this would be £103.12 if simple interest applied, for instance)

Balance = £209.40

oldfella

I dont understand your maths Milarky, but as RB10 says, 6.11 gross with daily compounding is 6.3AER

Paul_Herring

oldfella wrote: »

I dont understand your maths Milarky, but as RB10 says, 6.11 gross with daily compounding is 6.3AER

Compounding daily means the interest is added to the account on a daily basis.

I don't think any accounts do this.

rb10

Paul_Herring wrote: »

Compounding daily means the interest is added to the account on a daily basis.

I don't think any accounts do this.

No, compounding daily does not mean that interest is added to the account on a daily basis. (However, the converse is true, adding interest daily does mean compounding daily).

Instead, compounding daily means that when the interest is worked out each day, it is done on the basis of the current capital balance of the account plus any interest accrued so far but not paid.

According to Egg's FAQs on their web site, this is how they do it:

How is my interest calculated?
Interest is calculated on a daily compound basis.

Paul_Herring

rb10 wrote: »

No, compounding daily does not mean that interest is added to the account on a daily basis. (However, the converse is true, adding interest daily does mean compounding daily).

Instead, compounding daily means that when the interest is worked out each day, it is done on the basis of the current capital balance of the account plus any interest accrued so far but not paid.

Compounding daily means that the interest earnt yesterday is included in the calculation for interest today. The interest earnt yesterday and today is included in the calculation for tomorrow.

According to Egg's FAQs on their web site, this is how they do it:

They say compounded, but I don't believe them.

Merely applying the interest rate on a daily basis (as most institutions do these days) does not make it 'compound on a daily basis' unless previous day's interest is applied to the balance before 'today's' interest is calculated.

Since the figures they're giving are x% gross/AER, they are not compounding on anything less than a yearly basis.

Dagobert

Paul_Herring wrote: »

Compounding daily means that the interest earnt yesterday is included in the calculation for interest today. The interest earnt yesterday and today is included in the calculation for tomorrow.



They say compounded, but I don't believe them.

...

Since the figures they're giving are x% gross/AER, they are not compounding on anything less than a yearly basis.

I have to disagree with you there.

I initially assumed that interest was applied on a daily basis, which resulted in a £10 discrepancy. I received £971.48 gross interest; applying 6.3% on a daily basis gave £981.90.

Following rb10's post, I calculated my interest on a daily compounding basis, applying 6.11%. (An AER of 6.3% means 6.11% gross interest if compounding daily.) This calculation gave me £971.15 interest, which is virtually exactly what I received.

Of course, this is no proof as such but it is so close that I am convinced that Egg indeed compound interest on a daily basis.

Paul_Herring

So why are they advertising x% Gross/AER, instead of x% Gross/y% AER?

oldfella

Of course, this is no proof as such but it is so close that I am convinced that Egg indeed compound interest an a daily basis.

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if they are compounding daily presumably it is at 6.11% gross, not the 6.3% they advertise?