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ING Direct - How Exactly Does the Interest Work?

January 16th, 2008 at 05:02 pm

Ahhh, 4.10% interest on my savings account feels good! Thank you to everyone who helped me see the light on this issue.

I have a question, however. I am under the impression that interest accrues daily and is credited to my account monthly. Hmmm. If I had $100 in savings today, would I have $104 tomorrow at 4% interest? And then would that $104 be $108.50 (or somewhere close) the next day?

That seems too good to be true.

12 Responses to “ING Direct - How Exactly Does the Interest Work?”

  1. MariRDH Says:

    4.1% is an annual rate (APR=Annual Percentage Rate), so you'll make roughly 4.1% of $100 divided by 365 each day....um, so about 1.12 cents per day.

    Am I allowed to yank your chain and say that I'm glad you're not a math teacher?! *LOL* Wink

  2. mom-from-missouri Says:

    Shouldn't that be .112 cents a day instead of 1.12 a day??

  3. luxliving Says:

    You need to look up in the dictionary the difference between 'accrued daily' and 'compounded daily'. Unfortunately for us savers accrued daily is not near as exciting as compounded daily. Frown

  4. MariRDH Says:

    mom,

    English teacher should be able to confirm, but because i said 1.12 cents it is correct. If i said .112 cents it would be about one tenth of a cent. I could have said $0.112 and left the word "cents" off though. Smile

  5. Amber Says:

    I think it is great when anyone learns the value of saving at a higher rate, it took me a while to realize that.
    Their APY is 4.10% which is a lot higher than my local bank, anyhow it is the yield you earn on a deposit over a year. However I am not sure how you calculate
    Here is the formala for excel: =POWER((1+(A1/B1)),B1)-1 where A1 is the Rate and B1 is compounding frequency.

  6. mom-from-missouri Says:

    MariRDH,
    Maybe I am reading your post wrong, but I am reading it that you say she is earning 1.12 daily on her $100. She isn't earning that daily. If she is, I'll go to her bank in a heart beat.

    She is earning about a tenth of a cent daily on $100.

  7. Broken Arrow Says:

    I know I'm being a Math Nazi but... 1.12 cents = $0.0112

    Also, please note that there is a difference between APR and APY. ING is actually paying 4.1% APY, which unfortunately makes the APR to be 4.018% (or 4% for short).

    But otherwise, yes, you're basically earning slightly more than a penny each day with an initial deposit of $100.

    Edit: Woah woah, hang on! Big Grin So many confusing little tidbits. Ok, assuming 4.1% APY = 4.0% APR, 4% of $100 is $4. $4 divide by 365 days = 0.01095, OR, 1.09 cents.

    Here's a nice explanation between APR and APY

  8. mom-from-missouri Says:

    Ah, I was reading her 1.12 as dollars totally messing her word CENTS!!! duh. Thanks BA for straightening that out. (kind of like can't see the forrest for the tree??)

  9. baselle Says:

    I much prefer Warren Buffett's definition of APR and APY:
    Rate is what they give you, yield is what you get. Take the Y, don't worry about the R.

    Again, 4% per year. It accrues daily, so it gives you something to look forward to. It compounds monthly, so on the first of the month you'll see what has been accruing on your account.

    FYI - every $100 bucks = penny more in interest daily. Gives you a little incentive to start forking it in!

  10. Broken Arrow Says:

    To add, if you're a self-proclaimed pragmatist like me, APY is what you would get if you don't touch anything in your savings throughout the year. However, if you took out the interest earned at the end of every month, and reset your savings back to $100 every time, then what you would end up with is APR.

    Hope that didn't make things more confusing. Big Grin

  11. campfrugal Says:

    If you need a link, let me know, I can forward you one, so that you can get the bonus $25.00, and also Etrade as a bonus of $25.00 for opening a savings for just $1.00, if you need one of those links, let me know.

  12. Ruben Barragan Says:

    i just came across this so your telling me that its not earning on one dollar and cents but one penny.

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