No. of Recommendations: 0
OK you foolish mathmaticians, I need a little help. Im not the greatest with math so here goes. Im trying to decipher exactly how this works and how much money I would make on intermediate savings account.

If Providian National is offering an APY of 5.25% on $2000 that's being compounded daily. How do I really figure out how much money I'd be getting in interest for sayyy 2yrs.

Appreciate all responses.
Print the post Back To Top
No. of Recommendations: 1
OK you foolish mathmaticians, I need a little help. Im not the greatest with math so here goes. Im trying to decipher exactly how this works and how
much money I would make on intermediate savings account.

If Providian National is offering an APY of 5.25% on $2000 that's being compounded daily. How do I really figure out how much money I'd be getting in
interest for sayyy 2yrs.


Correct me if I'm wrong, but I believe that Annual Percentage Yield (APY) is how much your money earns in a year, and takes into account the compounding. Therefore, after one year, your $2000 gains 5.25% and thus becomes $2105. The second year, that $2105 gains 5.25% and becomes $2215.51.

Annual Percentage Rate is a smaller number. To convert to APY, you must divide APR by the number of compounding periods, and that to one, raised that number to the number-of-compounding-periods-in-a-year and subtract one.

Assume APR of 5.117% and daily compounding (365 days a year [this year, at least.])

APY = ((1 + (APR/365))^365) - 1

APY = ((1 + (0.05117/365))^365) - 1 = 0.0525 (5.25%)

People borrowing your money (savings accounts, etc.) like to quote APY, as it is a larger number, and people loaning you money (CC's, car loans, etc.) like to quote APR as it is smaller.

John
Print the post Back To Top
No. of Recommendations: 0
People get freaked out by the difference between APR and effective loan rate quoted on loan documents. Often, the effective loan rate is higher than the quoted APR because fees (doc stamps, loan booking charges, etc.)are financed into the loan as part of the interest, rather than the principle. Which is nice, actually, since that way you don't end up paying interest on a tax or fee as well as the money you borrowed. It does, however, dink with the calculations in strange and mysterious ways, and many of the people who close loans every day have no idea why there is a difference.
Print the post Back To Top
Advertisement