Math Problem

[akaivyleaf]

Ooh great math guru's who are about... How do you calculate interest on a month to month basis in either your ING or Emigrant Direct account. I understand within a 12 month period I will YIELD 3.15% but do I divide that by 12 to realize a monthly yield, or is it something more complicated than that.

[PennyPincher]

Looks like you already know what you're doing ~

Yes, you take 1/12 of what you would earn for the year.

So assuming you had $10,000 ....

$10,000 * 3.15% / 12

$26.25 monthly

Just remember that you will earn slightly more each month (a few cents, really) because of the compounded interest. You continue to earn more interest on the interest you receive....

[DivaJen]

If the rate is 3.15% and is paid out each month, divide 3.15% by 12 and then multiply by that to find the interest earned for the month.

If 3.15% is the APR, however, you need to use the actual rate to calculate interest each month. The compounding is what leads to the APR.

Looks like we posted around the same time.

[gakline]

For Continuous Compounding:
A=Pe^(rt)

where:
P = principal amount (initial investment)
e= Napier's Number ~ 2.7183 (if you have a scientific calculator, it should have it.
r = annual interest rate (as a decimal)
t = number of years
A = amount after time t

In your case t=1 month = 1/12 = 0.08333

The Compound Interest Equation
P = C (1 + r/n) nt
where
P = future value
C = initial deposit
r = interest rate (expressed as a fraction: eg. 0.06)
n = # of times per year interest in compounded
t = number of years invested

Even more Here.

[pennywise]

Your bank has the formula. I calculate my interest myself in my budget. The forumula is:
Oh, I use Lotus 1-2-3 @sum((principle*interest rate)/365)*days in the month = monthly
this is principle payment times the interest rate divded by 365 days in a year multiplied by the number of days in the month (can do for quarterly also using number of days in the quarter). Call your bank, they will tell you the formula, but I am positive about mine.

[akaivyleaf]

I'm trying to figure out why my Emigrant Direct and Ing accounts don't match my calculations. I figured it was just my bad math. My local banks saving's accounts don't matter, they are just place holders more than anything. My bank gave me a free savings account, and I told them no thank you, they insisted and with no fees why argue with them, except there is no money in it because they pay miniscule interest.

Sharon

[DivaJen]

I was rereading your first post. If the yield is going to 3.15%, then the actual rate is something less than that.