Kaupthing Edge interest question

[Deleted User]

Hi,

I've worked out my interest for my Kaupthing Edge account and I've calculated over 9 days I should have got £1.05 interest. However the site shows £1.02.

I know it's only 3p and I should worry about other things but I'm just curious. They state 6.50% AER, my sums are based on this and use the following formulae:

= ((Balance * Number of days) / 365) * AER %

Where am I going wrong?

Thanks

David

iNFLUENCE_2

2008 is a leap year isnt it? That will make a difference

Aegis

Deleted_User wrote: »

Hi,

I've worked out my interest for my Kaupthing Edge account and I've calculated over 9 days I should have got £1.05 interest. However the site shows £1.02.

I know it's only 3p and I should worry about other things but I'm just curious. They state 6.50% AER, my sums are based on this and use the following formulae:

= ((Balance * Number of days) / 365) * AER %

Where am I going wrong?

Thanks

David

Basically your formula is incorrect. It's ok as an approximation, but AER is the end result of what happens if you leave your interest to compound for a year. The formula you want is:

Current Balance = Starting Balance * ( 1 + Gross Interest / 36500 ) ^ ( Number of Days )

If the gross rate were 6.4% and you were in with £1000 for 10 days, for example, the formula would be:

CB = £1000 * (1 + 6.4/36500)^10
CB = £1001.75

[Deleted User]

Thanks Aegis

AER is the end result of what happens if you leave your interest to compound for a year.

D'oh! Should have realised that myself!

Can you parenthesise your formula please? It's getting late and I can't get Excel to match the figure's you've used

I'm getting:

CB = 1000 * POWER ( ( ( 1 + 6.4 ) / 36500), 10)
CB = 1.17324E-34

[Deleted User]

While we're talking formulae can you check my ISA and regular saver ones:

Monthly ISA Interest = ( ( ISA starting balance * ISA AER %) / 365 days) * Number of days in month

This is then summed up after 1 year and added to the starting balance.

Monthly Reg Saver Interest = ( ( ( Monthly closing balance * Reg Saver AER %) / 365 days) * Number of days in month) - Tax

Again this is then summed up after 1 year and added to the starting balance.

I'm not really looking to have a massive spreadsheet detailing each days interest however.

YorkshireBoy

For monthly paying interest you need to be using the gross p.a. rate...NOT the AER.

So, you'll use 6.31% for Kaupthing.

Does that give you £1.02 ?

A quick check indicates it will...

1.05 / 6.5 x 6.31 = 1.019307

Aegis

Deleted_User wrote: »

Thanks Aegis D'oh! Should have realised that myself!

Can you parenthesise your formula please? It's getting late and I can't get Excel to match the figure's you've used

I'm getting:

CB = 1000 * POWER ( ( ( 1 + 6.4 ) / 36500), 10)
CB = 1.17324E-34

CB = $A$1*(1+($A$2/36500))^$A$3

If you put your starting balance in Cell A1, your gross interest rate in cell A2 and the number of days in A3, you should output the expected balance. Of course, this is assuming you get paid gross. If you don't, you need to adjust the gross interest rate to match your tax position, which by default will require you to reduce it by 20%.

Hope that helps!

[Deleted User]

YorkshireBoy, Aegis - both spot on! The difference over 10 days is hardly nothing but over a year it'd make me wonder where those pennies had gone

Correct formula = 1.1301
Approximation formula = 1.1293

How do those 2 other formulae look in post 5? Best I can do?

YorkshireBoy

Deleted_User wrote: »

How do those 2 other formulae look in post 5? Best I can do?

Interest is always calculated daily, and using the gross p.a. rate.

For a monthly interest paying account, the gross p.a. rate will be less than the quoted AER (except where an introductory bonus applies). It will be shown as, say, "6.31% gross p.a."

For an annual interest paying account the gross p.a. rate will be the same as the AER (as long as no introductory bonus applies). It will be shown as, say, "6.50% AER/Gross".

For your monthly interest paying accounts, the interest is added to the month end closing balance. This new figure is then the opening balance for month 2. At the end of month 2, the interest is added and the new figure forms the opening balance for month 3...and so on.

[Deleted User]

If I put £3600 into an ISA paying 6.25% AER what do people work the yearly interest to be?

I've got either £225.00 using:

Monthly ISA Interest = ( ( ISA starting balance * ISA AER %) / 365 days) * Number of days in month

Or £225.57 using

Monthly ISA Interest = ( ISA starting balance * ( 1 + (AER % / 365 ) ) ^ Number of days in month )

YorkshireBoy

Deleted_User wrote: »

If I put £3600 into an ISA paying 6.25% AER what do people work the yearly interest to be?

The 'A' in AER stands for 'annual', so £3,600 x 6.25% = £225.00 for the year.

If your ISA account pays interest monthly, you should use the gross p.a. rate of 6.08% as follows...

June = £3,600.00 x 6.08% / 365 x 30 = £17.99
July = £3,617.99 x 6.08% / 365 x 31 = £18.68
...and so on.

At the end of the year though, you'll have earned a total of £225.00 interest, ie the quoted AER, so long as the interest paid remains in the ISA account.