Interest calc consolidation - monthlies vs annuals??
I cannot get monthly interest amounts to reconcile to annual interest amount. Suppose we assume that interest for a given period = rate% x opening balance. There are two problems with reconciling the monthlies vs annual calcs:
1.In a given year, you might have a lot of drawdowns in the last month of the year (e.g. Dec 23), which will not be reflected in opening balance in that same year (i.e. there is a month lag, so int is calculated in jan 24 so within the next year), so interest will not reflect this big drawdown in the last month of the year, for the same year.
2. annual interest takes the convenient assumption that it is just opening balance * rate%, but it does not consider the timing of the drawdowns / repayments within that year.
Does this mean there will always be differences between the two calculations? What are people doing to mitigate these differences?