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Calculating Interest on a "Virtual" Savings Account (lemmy.world)

submitted 1 year ago by [email protected] to c/[email protected]

8 comments fedilink hide all child comments

So for our kids, who are still quite young, instead of opening an entire other savings account for them, we decided to do "virtual" savings accounts.

Essentially, we have a spreadsheet with what money they have gotten from birthdays and other events, then we just deposit it in our savings. They can withdraw whenever they want.

In this spreadsheet, I've been trying to keep track of interest (in a basic way), to show how saving can also help them "earn" money. However, I don't think I'm doing it correctly.

See Google sheet: dates are not correct and interest rates are not accurate. I just wanted to show that we are attempting to give the "correct" interest rate for the given date. (I know interest rates fluctuate all the time, just trying to not make it not too difficult to maintain)

https://docs.google.com/spreadsheets/d/1rwwIFVOGYt-lIx8Dtuv_6PGz28jSNQbH7LcZG2qKlfg/edit?usp=sharing

Thank you for taking a look, I've been trying to get this right for a while.

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[–] [email protected] 3 points 1 year ago* (last edited 1 year ago) (2 children)

interest rates are usually an annual rate and accrue monthly. You seem to have applied the interest percentage of 1% to every deposit which is incorrect. Each deposit should gain that amount every year. For example, if you deposited $10 last year now it would be $10.10. If you deposited $10 2 years ago it would now be $10.201 due to the interest compounding.

[–] [email protected] 4 points 1 year ago (1 children)

Interest is usually calculated as a daily accrual of the EOD balance, then applied monthly.

Some systems will actually do the accrual daily and store the balance in a shadow account, others will just calculate the interest when it is applied.

So if you had $100,000 in your account for just one day and nothing else for the rest of the year, at 5% interest you would earn 100000 * 0.05 / 365 = $13.69

[–] [email protected] 1 points 1 year ago

This seems like the best answer, it's still not exact since interest changes daily (at least in the U.S) and interest compounds monthly.

But I changed the interest formula to:

Number of Days * Interest Rate * (Last Balance + Deposit) / 365

That seems to be more accurate.

[–] [email protected] 3 points 1 year ago

I agree.

Also check out Greenlight which has a built in parents interest feature.