Simple vs compounding rate | GIC discussions | Discussion forum

Please consider registering
guest

sp_LogInOut Log In sp_Registration Register

Register | Lost password?
Advanced Search

— Forum Scope —




— Match —





— Forum Options —





Minimum search word length is 3 characters - maximum search word length is 84 characters

sp_Feed Topic RSS sp_TopicIcon
Simple vs compounding rate
August 9, 2020
1:19 pm
bird
Member
Members
Forum Posts: 21
Member Since:
December 18, 2019
sp_UserOfflineSmall Offline

I noticed that all GICs I've had with my bank calculate simple interest, yet agents stated that it would be daily compounding. Did anyone else notice this discrepancy? In the US banks promote a compounded APR rate in big font along with a tiny print of the smaller actual rate. Here I see only one rate regardless of its compounding features...So which is it?

August 9, 2020
1:44 pm
Norman1
Member
Members
Forum Posts: 6675
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

I've never seen a GIC or term deposit that compounds daily. It is usually annual or monthly compounding.

The only one I've seen who does daily compounding is Canada Revenue Agency.

Are you sure that agents weren't talking about the daily accrual of GIC interest?

September 6, 2020
7:11 pm
topgun
Member
Members
Forum Posts: 452
Member Since:
September 6, 2020
sp_UserOfflineSmall Offline

Norman1 said
I've never seen a GIC or term deposit that compounds daily. It is usually annual or monthly compounding.

The only one I've seen who does daily compounding is Canada Revenue Agency.

Are you sure that agents weren't talking about the daily accrual of GIC interest?  

If you deal with CIBC or Simplii they show daily compounding.
Simplii
1 year Annual Rates.897% APR .90%

Have a Great Day

September 7, 2020
7:49 am
Loonie
Member
Members
Forum Posts: 9212
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

Savings accounts normally say "calculated daily", which is not at all the same as "compounded daily". It just means that day's interest is calculated on that day's balance, then added to the next day's and so on; not compounded.
APR, by definition, doesn't include compounding.

September 7, 2020
1:28 pm
Norman1
Member
Members
Forum Posts: 6675
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

This is the fine print for the Simplii GIC's. As Loonie described, interest is calculated (not compounded) daily at the 0.897% APR rate and compounded monthly to give the 0.90% APY rate:

*Interest is calculated on the daily closing balance based on the simple interest rate and is paid or compounded (depending on the interest option chosen) at the end of each month. Your GIC is non-redeemable and must be held for the entire term. …

³ Annual percentage yield (APY) - the effective interest rate, illustrating the effect of compounding, or earning of interest on interest.

Please write your comments in the forum.