Different banks in different countries use different bases for calculation, using one of the following methods:

- 365-day year (even for leap year)
- 365-day year (except for leap year, when 366-day year is used)
- 360-day year

That means that you may actually earn more (or less) interest depending on which bank you're using (and which country you're banking in).

ILLUSTRATION

Let's use this interest calculation formula to look at how the different bases affect how much interest you get.

FORMULA:

Amount in Deposit Account

MULTIPLIED BY Interest Rate per year

MULTIPLIED BY number of days the amount is placed in the deposit account

DIVIDED BY No of days per year used as basis for calculation (365, 366 or 360 days)

So let's say that we put $100,000 in the bank for 60 days in 2008 (a leap year) at an interest rate of 5% per annum, this is what you will get at different banks:

BANK A

366-DAY YEAR BASIS IN 2008

Interest

= $100,000 x 5% x 60 days / 366

= $819.67

BANK B

365-DAY YEAR BASIS IN 2008

Interest

= $100,000 x 5% x 60 days / 365

= $821.92

BANK C

360-DAY YEAR BASIS IN 2008

Interest

= $100,000 x 5% x 60 days / 360

= $833.33

So, next time you visit your bank, you may want to ask them exactly how they calculate their interest.

## No comments:

Post a Comment