INTERESTING FACT ABOUT INTEREST CALCULATION

Did you know this? Banks vary in the basis on which they calculate interest payments on deposits placed with them.

Different banks in different countries may vary in the number of days they consider a 'year', either using:

• 365-day year (even for leap years)
  
• 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.


FORMULA FOR INTEREST CALCULATION

Simple interest calculation is based on this 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)


AN EXAMPLE OF HOW MUCH YOU WILL GET USING THE DIFFERENT BASES FOR CALCULATION:

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 year, this is what you will get at different banks

BANK A - 365-DAY YEAR BASIS IN 2008
Interest
= $100,000 x 5% x 60 days / 365
= $821.92

BANK B - 366-DAY YEAR BASIS IN 2008
Interest
= $100,000 x 5% x 60 days / 366
= $819.67

BANK C - 360-DAY YEAR BASIS IN 2008
Interest
= $100,000 x 5% x 60 days / 360
= $833.33