Compound interest and SEPA credit transfer: Difference between pages

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Compound interest is calculated as ‘interest on interest’ as well as interest on the original principal amount.
(SCT).  


Compound interest per year is the usual quotation basis for periods of more than a year.
An electronic transfer of euro made under the rules and standards of the SEPA Scheme.


To calculate compound interest for different periods we compound up or de-compound the interest depending on the relative lengths of the periods being considered.


The standardised formats and service levels create:


<span style="color:#4B0082">'''Example 1'''</span>
#Certainty over data carried and delivered with payments.  
 
#A requirement for gross payments with a maximum execution time 1 day; and
Interest quoted at 6% per annum,
#Other specifications, for transfers within Europe, whether between or within national boundaries.
 
compounded annually,
 
for two years maturity,
 
with all of the interest paid at the final maturity,
 
means that the interest paid after two years will be (compounding up for two periods):
 
= (1.06 x 1.06) - 1
 
= 12.36% periodic interest for the two year period.
 
 
Decompounding is used to calculate periodic interest for a shorter period.
 
 
<span style="color:#4B0082">'''Example 2'''</span>
 
If periodic interest is 12.36% for a two-year period, this means the total accumulated interest payable/receivable at the end of the two years is 12.36%.
 
Decompounding the 12.36% (per two years) to calculate the interest for just one year. One year's interest:
 
= (1 + 0.1236)<sup>(1/2)</sup> - 1
 
= 6.00% per one-year period.




== See also ==
== See also ==
* [[CAGR]]
* [[SEPA direct debit]]
* [[Compounding effect]]
* [[Single Euro Payments Area]]
* [[Day count conventions]]
* [[Payments and payment systems]]
* [[Effective annual rate]]
* [[Nominal annual rate]]
* [[Periodic rate of interest]]
* [[Periodic yield]]
* [[Simple interest]]


[[Category:Cash_management]]
[[Category:Cash_management]]
[[Category:Financial_products_and_markets]]
[[Category:Liquidity_management]]

Revision as of 12:27, 11 May 2016

(SCT).

An electronic transfer of euro made under the rules and standards of the SEPA Scheme.


The standardised formats and service levels create:

  1. Certainty over data carried and delivered with payments.
  2. A requirement for gross payments with a maximum execution time 1 day; and
  3. Other specifications, for transfers within Europe, whether between or within national boundaries.


See also

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