• We’re currently investigating an issue related to the forum theme and styling that is impacting page layout and visual formatting. The problem has been identified, and we are actively working on a resolution. There is no impact to user data or functionality, this is strictly a front-end display issue. We’ll post an update once the fix has been deployed. Thanks for your patience while we get this sorted.

DIE

i think he wants to know how a 3% interest rate (for a year) translates into how much he would get per day, month, etc.
 
Originally posted by: RossMAN
Originally posted by: Meractik
However, i would like to understand it a little before before setting one up. Anyone care to explain? thanks.
Click to expand...

What exactly don't you understand?[/L]
Click to expand...
math apparently...

The quoted rate is approximated. You acually get ~1/365th of that per day, which compounds on itself every day. The formula gives the exact math.
 
Originally posted by: Meractik
howstuffworks.com article

I am having trouble understanding the part in the article above where it says..

Daily compounding = Principal (1 + interest rate/365)365 = (daily compounded amount)

could anyone better clarify this for me, im 21 and never had a savings account only a regular checking account and with ING interest rates at 3% id like to hop into one of those accounts. However, i would like to understand it a little before before setting one up. Anyone care to explain? thanks.
Click to expand...

daily compounding means that your principal will recalculated every day i.e. the new principal for the day will be the old principal + the intrent on it
 
Originally posted by: Meractik
so is it dependant of how much is in the account per day, dividied by 6% that is redeposited at the end of the year?
Click to expand...

Depends on when that institution appends interest earned.....
 
Originally posted by: Meractik
Originally posted by: Electric Amish
How can a 21 year old not understand how a savings account works???
Click to expand...

i always kept my money in my checking account. but the interest is appealing to me now.
Click to expand...

To save yourself the complexity, higher interest rate (APR) is better, provided it's not in a CD any longer than 6 months (with interest rates on the rise there's no sense in locking in a lower interest rate for longer than that)
If you really need to know how much you're going to make off interest because the interest is vital to your survival, you may want to consider not getting a savings account at all. If you don't need the specific interest amount for your survival, it's barely worth it to figure out (especially if it's daily compounding). Just get an ING Direct referral from the first person who PMs you a referral link and set that up (they have some of the highest non-CD interest rates around)

Edit: and re: the original question, most banks have different rules for interest so we probably won't be able to specifically help you without knowing which bank(s) you're looking at.
 
Originally posted by: Electric Amish
How can a 21 year old not understand how a savings account works???
Click to expand...

This is America. We don't save money here. We use it to put a down payment on a jetski.
 
Originally posted by: Electric Amish
How can a 21 year old not understand how a savings account works???
Click to expand...

how could thousands of NYC residents of legal driving age not know how to drive?

OP, let's say you have $100 in your account and your interest rate is 5%. if the interest was compounded yearly, then at the end of your 1st year you'd expect to have $105 or $100 + (5% of $100) in your account. if you left it in there then the next year you'd expect to have $105 + (5% of $105).

however, if the interest is compounded daily, then instead of just getting $5 at the end of the year, you'd take that $5, divide it by 365 to get the daily amount added to your account(.0137), then actually add it to your account, for a total of $100.01. the next day you do this same calculation with not $100 in your account but with $100.01 in your account.

at least, this is my understanding. someone correct me if i'm wrong.
 
You pretty much hit it on the head. In your example, 5% annual interest rate COMPOUNDED DAILY is the equivalent to 5.1267% compounded annually.

This is also good to know when shopping for mortgages as most lenders quote the annual rate (without compounding), not the effective rate. So many mortgages get you in with a low rate and call it such nonsense as RATE and then behind it put something called APR. Obviously, you want to look at APR more than the quoted rate as this will be your true mortgage rate.

Another easy way to do this is in Excel. They have a built in function to calculate effective rates. EFFECT(nominal rate, # of compounding periods)


Originally posted by: blackdogdeek
Originally posted by: Electric Amish
How can a 21 year old not understand how a savings account works???
Click to expand...

how could thousands of NYC residents of legal driving age not know how to drive?

OP, let's say you have $100 in your account and your interest rate is 5%. if the interest was compounded yearly, then at the end of your 1st year you'd expect to have $105 or $100 + (5% of $100) in your account. if you left it in there then the next year you'd expect to have $105 + (5% of $105).

however, if the interest is compounded daily, then instead of just getting $5 at the end of the year, you'd take that $5, divide it by 365 to get the daily amount added to your account(.0137), then actually add it to your account, for a total of $100.01. the next day you do this same calculation with not $100 in your account but with $100.01 in your account.

at least, this is my understanding. someone correct me if i'm wrong.
Click to expand...

 
You must log in or register to reply here.

TRENDING THREADS

Back
Top