tag:blogger.com,1999:blog-5465015914589377788.post6579947656668179845..comments2019-12-05T09:37:12.647-05:00Comments on Michael James on Money: Actual Interest RatesMichael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-5465015914589377788.post-72444037358980396122008-06-10T13:08:00.000-04:002008-06-10T13:08:00.000-04:00Derek: There is nothing mathematically correct ab...Derek: There is nothing mathematically correct about this definition of rate. You could just as easily look at it on a monthly basis and decide that the interest is 0.5% per month. Then the total amount owed after a year would be $6.17 instead of $6.09.<BR/><BR/>The fundamental problem is that when you go from 6% per year to either 3% per half year or 0.5% per month, you are assuming that simple interest is being used. Then when applying this rate, interest is compounded. This is not honest.<BR/><BR/>The only kind of interest that makes any sense is compound interest. Compound interest should be applied when computing interest over a shorter interval. Using 6% per year is the same as 2.96% per half year or 0.487% per month.<BR/><BR/>Jumping back and forth between simple and compound interest to pump up the amount owed is dishonest.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-9338154559676451402008-06-10T12:57:00.000-04:002008-06-10T12:57:00.000-04:00There is nothing dishonest about using the mathema...There is nothing dishonest about using the mathematically correct definition of rate.<BR/><BR/>The reason you pay more then $6 is because you owe more than $100 for the last six months. Not because the interest rate is higher.Dereknoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-90344983331224142322008-06-09T13:35:00.000-04:002008-06-09T13:35:00.000-04:00Derek: You're not right about this. 3% every six...Derek: You're not right about this. 3% every six months means the same thing as 6.09% per year. To advertise a rate of 6% per year, the interest after 6 months should be about 2.96% (the rate that compounds twice to 6%).<BR/><BR/>Banks switch back and forth between simple and compound interest in a way that increases interest paid. Just because we have become used to this doesn't make it honest.<BR/><BR/>It is true that Annual Percentage Yield (APY) is (usually) used to mean the truthful yearly interest rate. There is little excuse for not using this real interest rate all the time.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-50868807167785768102008-06-09T13:19:00.000-04:002008-06-09T13:19:00.000-04:00This effect you comment on has nothing to do with ...This effect you comment on has nothing to do with lying about interest rates. The reason for the increase that if you don't pay the interest you owe more money so the same rate results in higher interest.<BR/><BR/><BR/>ex.<BR/>$100 at 6% after 6 months interest is due, if you don't pay, your balance is $103 for the next six months you pay 6% on $103 which is $3.09. You pay the interest rate that they say on the money that you owe.<BR/><BR/>What you are hoping for is Annual Percentage Yield, they have that some places.Dereknoreply@blogger.com