Calculate AER with mid term deposit

[the_lone_wolf]

Hi all

Quick question, I know how AER works, I'm aware of how to calculate basic interest payments on accounts, but I can't find the answer to this kind of situation:

For example:
Savings account, 2.35% AER paid after one year, initial deposit of £62,500.

Additional deposit of £22,500 made at the start of month six of the term

What amount of interest will be paid after the first year?

Is it as simple as [0.5(62500*0.0235)+0.5(85000*0.0235)]?

[sidicks]

the_lone_wolf said:

Hi all

Quick question, I know how AER works, I'm aware of how to calculate basic interest payments on accounts, but I can't find the answer to this kind of situation:

For example:
Savings account, 2.35% AER paid after one year, initial deposit of £62,500.

Additional deposit of £22,500 made at the start of month six of the term

What amount of interest will be paid after the first year?

Is it as simple as [0.5(62500*0.0235)+0.5(85000*0.0235)]?

The accumlated balance will be:

62,500 * (1.0235) + 22,500 * 1.0235^0.5

So the interest paid is the above less £85,000.

Edited by sidicks on Thursday 5th September 18:07

[the_lone_wolf]

Thanks for that, google is giving me the same figure for both calculations so that seems logical

[sidicks]

the_lone_wolf said:

Thanks for that, google is giving me the same figure for both calculations so that seems logical

Well, both calculations are different!

Your calculation (incorrectly) applies interest of 1.175% to the £22,500 investment.

In fact the actual rate should be 1.0235^0.5 = 1.168%.

But the difference is only £1.53!