Comments on: Quick Overview of Banking Interest

By: Queercents » Blog Archive » Queercents Weekly Roundup: Job Satisfaction

Sat, 26 Jan 2008 12:35:51 +0000

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By: Inspiration from my Spam folder: Autopilot Profits | Mrs. Micah: Finance for a Freelance Life

Fri, 25 Jan 2008 01:28:33 +0000

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By: SavingDiva

SavingDiva — Wed, 23 Jan 2008 17:01:34 +0000

I would be extremely frustrated if I was misbilled…Usually I have automatic billing set-up to one of my credit cards…then I just pay that off…I score points too

By: deepali

deepali — Wed, 23 Jan 2008 16:38:43 +0000

Great post. I am often confused by credit card interest, because it compounds daily but posts monthly.

By: Dad

Dad — Wed, 23 Jan 2008 14:30:24 +0000

Pretty good. Especially for bank deposit interest. Credit Card interest is calculated on a daily interest rate (APY / 365). However, compounding on it usually takes place once a month on the billing cycle when the interest is added to the bill.

By: Jim

Jim — Wed, 23 Jan 2008 11:29:45 +0000

Most poeple forget about the time factor. Thus the bad math.

By: Early Retirement Extreme

Early Retirement Extreme — Wed, 23 Jan 2008 05:24:47 +0000

Compounding can happen in a daily, monthly, quarterly, semiannually, annually or continuously. If the stated yield (what is usually listed) is 6% and it is compounded monthly (this is the usual thing for bank account), you use an effective annual yield of (1+0.06/12)^12-1. This is slightly higher than the stated yield. I have not seen any place that compound continuously but it’s a good approximation to daily compounding which is what credit card companies do. Money market yields are slightly weird in that they compound on a 360 day year. I think CD yields are the same way.

By: RacerX

RacerX — Wed, 23 Jan 2008 04:44:13 +0000

Math tip #2

The other thing you can add is multiple years by using ^ . In other words, simple interest over ten years would be: P*1.03^5 This would be the principle over 5 years (simple interest).

S if you wanted to see how much $1000 1970 dollars where today (using 3$ for inflation):

Amount*Inflation^Years=Today’s Dollars
$1000*1.03^38= $3074.78

By: Lily

Lily — Wed, 23 Jan 2008 04:09:06 +0000

I didn’t check your math but your principles are correct. There really needs to be some basic PF education. APY is the key metric in so many aspects of personal finance that understanding it is very important. Hopefully your post clarified matters for some of the previously uninformed.