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You are here: BAILII >> Databases >> Scottish Law Commission >> Scottish Law Commission (Discussion Papers) >> Interest on Debt & Damages [2005] SLC 127(appendix e) (DP) (January 2005) URL: http://www.bailii.org/scot/other/SLC/DP/2005/127(appendix_e).html Cite as: [2005] SLC 127(appendix e) (DP)

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APPENDIX E

Comparison of Simple and Compound Interest

G. Table showing comparison of compound and simple rates of interest

The table below illustrates the effect of applying interest on a sum of £10,000 by three methods:

1. Simple interest at 8% per annum.

2. Compound interest at the Bank of England base rate (as it has varied from month to month) plus 1%.

3. Simple interest at the Bank of England base rate plus 1%.

Graph G shows the same information in line graph form.

MONTH	8% Simple	Base rate +1 Compound	Base rate +1 Simple
September 99 *	10,067	10,052	10,052
October 99	10,134	10,104	10,104
November 99 *	10,201	10,159	10,158
December 99	10,268	10,214	10,212
January 00 *	10,335	10,271	10,268
February 00 *	10,402	10,331	10,326
March 00	10,469	10,391	10,384
April 00	10,536	10,452	10,442
May 00	10,603	10,513	10,500
June 00	10,670	10,574	10,558
July 00	10,737	10,636	10,616
August 00	10,804	10,698	10,674
September 00	10,871	10,760	10,732
October 00	10,938	10,823	10,790
November 00	11,005	10,886	10,848
December 00	11,072	10,950	10,906
January 01	11,139	11,014	10,964
February 01 *	11,206	11,076	11,020
March 01	11,273	11,138	11,076
April 01 *	11,340	11,198	11,130
May 01 *	11,407	11,256	11,182
June 01	11,474	11,315	11,234
July 01	11,541	11,374	11,286
August 01 *	11,608	11,431	11,336
September 01 *	11,675	11,486	11,384
October 01 *	11,742	11,539	11,430
November 01 *	11,809	11,587	11,472
December 01	11,876	11,635	11,514
January 02	11,943	11,683	11,556
February 02	12,010	11,732	11,598
March 02	12,077	11,781	11,640
April 02	12,144	11,830	11,682
May 02	12,211	11,879	11,724
June 02	12,278	11,928	11,766
July 02	12,345	11,978	11,808
August 02	12,412	12,028	11,850
September 02	12,479	12,078	11,892
October 02	12,546	12,128	11,934
November 02	12,613	12,179	11,976
December 02	12,680	12,230	12,018
January 03	12,747	12,281	12,060
February 03 *	12,814	12,330	12,100
March 03	12,881	12,379	12,140
April 03	12,948	12,428	12,180
May 03	13,015	12,477	12,220
June 03	13,082	12,526	12,260
July 03 *	13,149	12,573	12,298
August 03	13,216	12,620	12,336
September 03	13,283	12,667	12,374
October 03	13,350	12,715	12,412
November 03 *	13,417	12,765	12,452
December 03	13,484	12,816	12,492
January 04	13,551	12,867	12,532
February 04 *	13,618	12,921	12,574
March 04	13,685	12,975	12,616
April 04	13,752	13,029	12,658
May 04 *	13,819	13,086	12,702
June 04 *	13,886	13,146	12,748
July 04	13,953	13,206	12,794
August 04 *	14,020	13,269	12,842

Months in which the Bank of England rate changed are shown by an asterix. The relevant changes to the rate were:

September 1999	5.25%
November 1999	5.5%
January 2000	5.75%
February 2000	6.0%
February 2001	5.75%
April 2001	5.5%
May 2001	5.25%
August 2001	5.0%
September 2001	4.75%
October 2001	4.5%
November 2001	4.0%
February 2003	3.75%
July 2003	3.5%
November 2003	3.75%
February 2004	4.0%
May 2004	4.25%
June 2004	4.5%
August 2004	4.75%

H: Graph showing comparison of compound and simple rates of interest

The graph below shows the effect of applying interest on a sum of £10,000 by three methods:

1. Simple interest at 8% per annum.

2. Compound interest at the Bank of England base rate (as it has varied from month to month) plus 1%.

3. Simple interest at the Bank of England base rate plus 1%.

The graph demonstrates that for the first year there is little difference between the three forms of calculation. The 8% simple rate (shown by the line marked by diamonds) rises steeply and evenly, leading to a figure far in excess of the lower rates, both compounded and simple. The lines marked by squares (Bank of England base rate plus 1% compounded) and by triangles (Bank of England base rate plus 1% simple) illustrate best the difference between simple and compound methods of calculation. For the 12 months there is little difference between them, but after that they begin to diverge until after 24 months there is a significantly higher figure for the compounded sum.


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