Advertising Disclosure
  1. Home
  2. Community
  3. Ask
  4. Interest Rate From Stated APY For A Leap Year

Interest Rate From Stated APY For A Leap Year

enduser
  |     |   711 posts since 2015

Can someone please explain what the interest rate should be on a leap year if the stated APY is 1.754%?

The bank shows the interest rate to be 1.710% is this correct?

  Post an answer
2


Answers
enduser
  |     |   711 posts since 2015
I found online the formula on how banks determine the monthly interest paid using the daily balance method. The formula even allows one to state the number of days in the year, and number of days in the monthly cycle.

With the formula in hand, I then created an Excel spreadsheet. The results produced, exactly matched the interest paid to the penny for that month by Patriot Bank.

What I found is that...

1. The interest rate stated in the user account page of 1.710% by Patriot Bank is indeed incorrect.

2. Patriot bank did in fact pay 1.74% interest per the daily balance method formula.

3. All APY calculators were correct in stating an interest rate of 1.74% when the stated APY is 1.754%

4. There was very little variance in the interest paid between a 360, 365, 366 day calendar when I made adjustments to the formula to reflect the number of days in the year for the stated principal.
Reply
4
enduser
  |     |   711 posts since 2015
This is from Patriot Bank.
https://bankpatriot.com/wp-content/uploads/2020/04/Patriot-Bank_Deposit-Agreement_Interactive_3.31.20.pdf

Not sure if this is what your are referring to.

We compound daily and credit interest to your account monthly.
We use the daily balance method to calculate the interest on your account.
"the daily balance method applies a daily periodic rate to the principal balance in the account each day."
Reply
3
me1004
  |     |   1,379 posts since 2010
Yes, that is, part of it. They also should indicate how many days in their year, different places use different numbers, not necessarily the actual number of days in a year. I see some saying 360 days, some 365, some will even say 365, except in leap year, when they use 366.

And notice the language there, it says they compound daily on the "principal balance" in the account, and credit it monthly. If it is not credited daily, and posted monthly, seems to me you would have the same amount in the CD every day of the month -- unless you did an early withdrawal. I'm not even sure what that means, sounds like they apply the rate to the same balance every day for a month, because the interest for each day is not credited until end of the month.

If so, I would think that is actually monthly compounding inthe sense most people think of compounding, as compounding is to get interest on the interest you have accrued. It could depend on what you consider "daily compounding" to mean. See if they have a clear, absolute definition of that somewhere.

Still, in the end, it is the APY that should be what you get over a full one-year term as per what they call a year. And many banks and CUs have a calculator at their Website so you can see precisely how many dollars that is.
Reply
2
enduser
  |     |   711 posts since 2015
They told me since it's a leap year that the base interest rate is what they show 1.710% and that the APY is 1.754%. However none of the online calculators that I have used or even Google itself when adjusted for leap year 366 days produces the base interest rate they state. I'm trying to figure out how they arrived at 1.710%.

Every calculator that I have used shows the interest as 1.730%

I have not found any bank style online calculators the determine the interest rate based on the daily balance system either.

Convert APY to APR calculator [can't adjust days in year]
https://www.calculators.org/savings/apy-to-apr.php

[can adjust days in year]
https://www.omnicalculator.com/finance/apy

https://www.mymoneyblog.com/apy_to_apr_calc.html
Reply
3
lou
  |     |   1,004 posts since 2010
Penfed uses a leap year calculation (366 days) in the rate for 2020
Reply
2
me1004
  |     |   1,379 posts since 2010
It will depend on the method/formula the bank or CU uses to compute compounding. That should be in the disclosures.
Reply
1


The financial institution, product, and APY (Annual Percentage Yield) data displayed on this website is gathered from various sources and may not reflect all of the offers available in your region. Although we strive to provide the most accurate data possible, we cannot guarantee its accuracy. The content displayed is for general information purposes only; always verify account details and availability with the financial institution before opening an account. Contact [email protected] to report inaccurate info or to request offers be included in this website. We are not affiliated with the financial institutions included in this website.