compounding vs non compounding

[sexpuppet6000]

i have a few thousand at ing. and i believe their interest is compounding daily. my dad took me to hsbc [i think thats what its called], and he showed me that he has a 3 month gic there with 3.85%. Ing only offers 3.5% for 3 months.

I looked further into it and discovered that he needs a min balance of 1000 dollars. no problem there. But i also discovered that its non-compounding. i asked the teller there she said it is. but after some calculations, i discovered she was wrong. seemed like she was new there.

so if i have 10k.

would it be better to have:

3.5% compounded
3.85% non-compounded

i googled a compounding interest calculator and maybe look for some graphs to see how much difference it is. but didn't have much luck.

any advice?

[forgamez]

1. 10K non compounded at 3.85%

= 10,000 * 1.0385 = $10,385

2. 10K compounded at 3.5% on a daily basis for a 3 month period (Assuming 30 days per month = 90 days)

= 10,000 * (1 + (0.035/90))^(90) = $10,356.13

[TheDude79]

Here's the compound interest formula

FV = PV(1 + i/N)^(tN)

Here's the simple interest formula

FV = PV(1+ it)

Where
FV = Future Value
PV = Present value
i = interest rate per annum
N = number of compounding periods per year
t = time held in years.

Now you can do it all yourself :)

[Sylvestre]

long story short, almost all banks offer compounding interest. I've actually not heard of a single bank that offers simple interest with anything.

what can vary is the way they calculate the compounding rate. it can be done monthly, weekly, daily etc. there's plusses and minuses to both but bottom line, unless you are high 6 figures or greater, it's not going to make a significant amount of difference, and by that time, you'll be investing in other things :)

the simple answer to your question is - the higher interest rate is always better.

that's the simple answer but rarely the correct one. there are other factors you need to consider such as 1)how easily is the money available to you, 2)what's the reputation of the lending instiuition, 3)do they require minimums, 4)is the money only available after a certain period of time etc etc etc.

[sexpuppet6000]

very good. thanks.

[cheeseshredder]

Hm, I'm a little confused about what the rate each bank gives is supposed to be.

With ING, using their calculator, the figure it gives me is roughyl around the same as using the compound interest formula.

However, when I use the achieva formula, the number doesn't work out like the compound interest formula, since Achieva is still compounded, I am wondering if their listed percent is the APV and not the interest rate?

Here is the Achieva one: http://www.achieva.mb.ca/calculator.asp
Here is the ING one: http://ingdirect.ca/calculators/en/calc/isa/isa.jsp?title=ISA&Currency=CAD