interest calculations | General financial discussion | Discussion forum

Please consider registering
guest

sp_LogInOut Log In sp_Registration Register

Register | Lost password?
sp_Search Search
Advanced Search
Advanced Search

— Forum Scope —




— Match —





— Forum Options —





Minimum search word length is 3 characters - maximum search word length is 84 characters

sp_Search Search
Go to Bottom
No permission to create posts
sp_Feed Topic RSS sp_TopicIcon
interest calculations
August 1, 2017
7:50 am
yuj
Ontario
Member
Members
Forum Posts: 34
Member Since:
March 2, 2015
sp_UserOfflineSmall Offline
Go to Top
1sp_Permalink sp_Print

Term 1 Year 18 Mths 2 Year 5 Year
Annual compound 2.75 2.85 2.95 3.25
Semi-annual 2.70 2.80 2.90 3.20
Monthly 2.65 2.75 2.85 3.15

I know these rates (annual vs semi-annual vs monthy) per term are almost equal
but what are the actual rates and the formulae to calculate so as to choose the highest return (annual vs semi-annual vs monthy)?

August 1, 2017
2:43 pm
AlainJF
Member
Members
Forum Posts: 191
Member Since:
January 16, 2017
sp_UserOfflineSmall Offline
Go to Top
2sp_EditHistory sp_Permalink sp_Print

Effective annual interest rate = (1 + (nominal rate / number of compounding periods)) ^ (number of compounding periods) - 1

ref: http://www.investopedia.com/te.....terest.asp (with a video !)

ref: https://en.wikipedia.org/wiki/Effective_interest_rate

August 1, 2017
3:15 pm
2of3aintbad
Member
Members
Forum Posts: 317
Member Since:
February 24, 2015
sp_UserOfflineSmall Offline
Go to Top
3sp_Permalink sp_Print

As for the monthly and semi-annual rates, you need to differentiate between compounding and not compounding. People choose the monthly option often because they are expecting to spend the interest payout, rather than reinvesting it, either compounding or at the current rate. In fact, I'm not sure that there are compounding monthly GICs, only savings accounts.

No permission to create posts
sp_Feed All RSS
Go to top

Please write your comments in the forum.