quick and easy interest question

[dcw@pr]

say i have a savings account that has an interest rate of 6%, and it has £1000 in it. How do I calculate how much money will be in it after X months?

[chim girl]

This assumes 6% is the flat rate not the AER

6% per annum / 12 months = 0.5% interest per month

£1000 X 0.5% = £5 in month one.

If you're reinvesting the interest paid then the interest due will be calculated on the new balance (£1005) in the follwing month, and so on. E.g.

£1005 x 0.5% = £5.05 in month two.

>> Edited by chim girl on Thursday 23 February 17:20

[dcw@pr]

so when my savings account says it is 6%, this they mean a flat rate?

thanks for that

[chim girl]

dcw@pr said:

so when my savings account says it is 6%, this they mean a flat rate

Depends who it is... all banks have to show the AER so you may need to double check.

[dcw@pr]

bankl said:

get 6.00% gross pa/AER

does this make a difference?

[Eric Mc]

I have learned that there is no such thing as a "simple" question when it comes to matters of finance. Or to be more exact, the question may be "simple", but the answer usually isn't.

There are all sorts of methods of calculating "Interest", simple, compound, AER etc.

[dcw@pr]

Eric Mc said:

I have learned that there is no such thing as a "simple" question when it comes to matters of finance. Or to be more exact, the question may be "simple", but the answer usually isn't. There are all sorts of methods of calculating "Interest", simple, compound, AER etc.

yes im sure you are giht. in the example above though, how would it be calculated?

[Eric Mc]

Which example?

The example provided seems to show the actual interest being calculated.

[chim girl]

The example above was based on compound interest. i.e. the money the bank gives you gets added to the balance and not withdrawn. In the example 6% was the flat rate of interest, this would result in an AER of ~6.2% ish.

If you want to drop me an email and give me an idea of balance/period I will be able to provide you with a month my month breakdown based on the AER.

Hope that helps

[dcw@pr]

so if I put £2000 in to an account with 6% AER, at the start of October 2004, what would I have now?

[johnp68]

about 2000 * 1.06^2 = 2247

or, more accurately, 1/10/04 to 21/9/06 is 1 year and 356 days, so you'd have

2000 * 1.06^(1+356/365) = 2000 * 1.06^1.975 = 2244

hope you understand the ^ terminology!