Can someone please explain interest rates to me.

[srothman]

OK, so can someone please help me understand how interest rates are calculated against investment accounts. As an example, consider R100 000 deposit.

Now, when looking at the product range from FNB (link below), specifically their Fixed Deposit accounts, how is the interest calculated, and paid, for terms shorter than 12 months? i.e. if they claim an effective rate of 4.95% for a six-month term, does it mean that you get, based on the R100 000 deposit, R4 950 after the six months, or is it R2 475 (4.95% per annum / 2)

https://www.fnb.co.za/rates/InvestmentAccounts.html

 

[RSkeens]

I would only consider that as a hold account for when market uncertainty is present and not really an investment account because you are guaranteed to lose buying power each year.

If you need to put R100 000 away then please consider an ETF or unit trust instead, especially if you are young. You can also usually have access to the money within a few business days if you choose to cash out.

 

[Icarium]

OK, so can someone please help me understand how interest rates are calculated against investment accounts. As an example, consider R100 000 deposit.

Now, when looking at the product range from FNB (link below), specifically their Fixed Deposit accounts, how is the interest calculated, and paid, for terms shorter than 12 months? i.e. if they claim an effective rate of 4.95% for a six-month term, does it mean that you get, based on the R100 000 deposit, R4 950 after the six months, or is it R2 475 (4.95% per annum / 2)

https://www.fnb.co.za/rates/InvestmentAccounts.html

The latter, so you'll get close to R2475.

 

[HapticSimian]

OK, so can someone please help me understand how interest rates are calculated against investment accounts. As an example, consider R100 000 deposit.

Now, when looking at the product range from FNB (link below), specifically their Fixed Deposit accounts, how is the interest calculated, and paid, for terms shorter than 12 months? i.e. if they claim an effective rate of 4.95% for a six-month term, does it mean that you get, based on the R100 000 deposit, R4 950 after the six months, or is it R2 475 (4.95% per annum / 2)

https://www.fnb.co.za/rates/InvestmentAccounts.html

Think about it for a minute...

If it were the former then longer-term investments wouldn't make sense. Just invest your money for 30 days at a time and get interest out the wazoo. Interest rates are pretty much always stated per annum.

 

[srothman]

If you need to put R100 000 away then please consider an ETF or unit trust instead.

I am, and I am Thanks.

Think about it for a minute...

If it were the former then longer-term investments wouldn't make sense. Just invest your money for 30 days at a time and get interest out the wazoo. Interest rates are pretty much always stated per annum.

I figured as much, but with some products explicitly stating that rates are per annum, and others not, I figured I'd ask. Thanks.

 

[HapticSimian]

I figured as much, but with some products explicitly stating that rates are per annum, and others not, I figured I'd ask. Thanks.

No worries. It's my estimation that details surrounding financial products being unclear and confusing is often not accidental. Suffice it to say though that you can assume p/a interest unless explicitly stated otherwise.

 

[KeganFinder]

OK, so can someone please help me understand how interest rates are calculated against investment accounts. As an example, consider R100 000 deposit.

Now, when looking at the product range from FNB (link below), specifically their Fixed Deposit accounts, how is the interest calculated, and paid, for terms shorter than 12 months? i.e. if they claim an effective rate of 4.95% for a six-month term, does it mean that you get, based on the R100 000 deposit, R4 950 after the six months, or is it R2 475 (4.95% per annum / 2)

https://www.fnb.co.za/rates/InvestmentAccounts.html

That is very misleading as I would understand 4.95% is effective for a 6 month term as stated and not a year long term.

But reading now the word "term" is probably the length of the deposit.

Banks trying to mess with us!

 

[phiber]

'Effective Rate' means it applies over a year period, if it was just a 'rate' then it would apply for the stated term.

 

[Lukcydog]

Typically the banks state an interest rate and then an effective interest rate. So they'll tell you the interest rate is 4.5% p.a, interest is calculated on a per month basis (ie 0.375% per month). The interest gained at the end of month 1 is added to your R100k which is R375. This R375 also gains interest in month 2 - 12. thus at the end of the 12 months the total value is R104 593.98 which gives you an effective rate of 4.59398%.