Question about bank interest rate ?the guy suggests me the formula for calculating interest rate of 0.20% Interest is compounded daily and paid monthly. Formula : (Amount x 0.2 )/365 is the daily interest . Question is : how comes 0.20% = 0.2 mathematically , I dont understand . 0.20% is supposed to be 0.2/100= 0.002. Nevertheless , could... |
Banks in the US do not use that formula. They take the annual rate and divide by 360 -- not 365. Then they compound using the actual number of days.
The formula for finding the value of a deposit in one year is:
FV = V * (1+R/360)^365
For 0.20%, you get about $1.02 on $500 in a year. To get $8.22 you would need a lot higher interest rate.
20% per year would give you $112.37 per year. That works out to $8.11 for the first month -- if the first month is February in a leap year.
It is likely that they ar eusing 365 rather than 360
(500 x .2) / 365 =
100/365 = .2739726
$500 invested at a 2% rate for the year is $510 total after 12 months. At 1 month it is 500.83, or 83 cents interest earned, not 8.22 interest earned.
