Bank account balances

Often, banks will pay interest on the ‘minimum monthly balance’, that is, the lowest amount the account contains in each calendar month. Banks may also offer accounts that pay interest on the ‘daily balance’.When interest is paid on the minimum daily balance then you should note that when money is deposited the daily balance used for the interest calculation is the amount in the account before the deposit was made, but when money is withdrawn then the daily balance used for the interest calculation is the amount in the account after the withdrawal.

Example:The table shows the entries in Tom’s bank book. If the bank pays interest at a rate of 3.75% per annum on the minimum monthly balance, find the interest payable for the month of June.

Solution: Minimum balance = 700 Interest = 700 × 3.75 × 1 = $ 2.19 100 × 12

Example:Andrea receives a statement from the bank which gives the detail of her investment account from 1 July until 31 December, 2005. The details are as shown. How much interest has been earned on this account if the bank pays simple interest of 4.5% per annum on the minimum daily balance?

Solution: Minimum balance 1st July- 8th August (31 +8 days) = $2000 Interest = 2000 × 4.5 × 39 = $ 9.6 100 × 365 Minimum balance 9ht August- 10th September (23 +10) = $2360 Interest = 2360 × 4.5 × 33 = $ 9.6 100 × 365Minimum balance 11ht September- 31th December (20 +31 +30 +31 ) = $3723.40 Interest = 3723.40 × 4.5 × 112 = $ 51.4 100 × 365Total Interest = 9.6 + 9.6 + 51.4 = $70.6

Example:The bank statement below shows transactions over a one-month period for a savings account that earns simple interest at a rate of 3% per annum calculated daily and paid monthly. a How much interest is earned in this month? b If interest is calculated on a minimum monthly balance instead, how much is earned this month?

Solution:a Minimum balance 1st May- 5th May (5 days) = $650.72 Interest = 650.72 × 3 × 5 = $ 0.27 100 × 365 Minimum balance 6ht May- 19th May(14 days) = $445.82 Interest = 445.82 × 3 × 14 = $ 0.51 100 × 365Minimum balance 20ht May- 31th May (12 days ) = $1241.37 Interest = 1241.37 × 3 × 12 = $ 1.22 100 × 365Total Interest = 0.27 + 0.51 + 1.22 = $2b. Minimum monthly balance = $ 445.82 Interest = 445.82 × 3 × 1 = $ 1.11 100 ×12