Interest rate question.

311

Hello ,I've a question I would like answered if possible ,:)
It's in relation to monies in an account and how much interest you get as the amount builds.

If I have several million euro in an account (COMPANY) ,does it make much difference if I add a few hundred thousand to that account ,every week .What I mean is ,does my interest get substantially higher with the increase or does it just moderately increase ??

FrCrilly

Your question is too vague. Write down an example with figures.

311

An example would be jan 2008 ,account balance €3,000,000.00
Jan 2008 lodgements €300,000.00
Interest to date end of jan 2008 i.e. €10,000

Would the interest be significantly lower ,without the €300,000.00 added.
Or is the interest on €300,000.00 the same ,regardless of the amount it is added to.

What I'm trying to see is ,if a company takes in cash at a high rate ,they stand to gain from interest ,more so if there output is slower.

Sonnenblumen

_Brian_ wrote:

An example would be jan 2008 ,account balance €3,000,000.00
Jan 2008 lodgements €300,000.00
Interest to date end of jan 2008 i.e. €10,000

Would the interest be significantly lower ,without the €300,000.00 added.
Or is the interest on €300,000.00 the same ,regardless of the amount it is added to.

What I'm trying to see is ,if a company takes in cash at a high rate ,they stand to gain from interest ,more so if there output is slower.

If you increase the amount lodged by 10% as in your example, does your monthly interest not also increase by a similar degree ie 10% and in this instance € 1,000?

There is surely no direct relationship between revenue (sales) and other income (interest earned) other than that the higher the revenue the more likely the co has scope to increase lodgements thereby increasing interest revenue. Otherwise when there is no sales revenue the co can continue to generate non sales revenue ie interest from deposits only.

Where's your Q?

Zaph

Are you asking do you get a higher interest rate on the account the higher the balance is? If that's the question, then the answer that would be given to you in the bank I work for is that it depends on what you negotiated when you opened the account. That said, a 10% increase in the balance would be unlikely to get you a higher rate unless it pushed you over some threshhold where a higher rate had been agreed. What we often have for companies with large cash balances is an agreement that they get a higher rate if they maintain a minimum balance, or sometimes a minimum average balance, over the interest period. I would also point out that there aren't loads of little increases, normally there would be only 2 or 3 different rates applied, depending on what range the balance falls into.

BendiBus

_Brian_ wrote:

What I'm trying to see is ,if a company takes in cash at a high rate ,they stand to gain from interest

Not sure if it relates to your question but that's exactly how a lot of cash based companies like supermarkets make money.

They buy a product on credit, sell it fast for cash (pretty much at cost) and keep the money on deposit until they have to pay their supplier. Their only profit is the interest earned during the credit period. But if you do a lot of cash business (i.e. hundreds of millions) then you can make millions in profit without an actual profit margin on your products!

311

BendiBus wrote:

Not sure if it relates to your question but that's exactly how a lot of cash based companies like supermarkets make money.

They buy a product on credit, sell it fast for cash (pretty much at cost) and keep the money on deposit until they have to pay their supplier. Their only profit is the interest earned during the credit period. But if you do a lot of cash business (i.e. hundreds of millions) then you can make millions in profit without an actual profit margin on your products!

Thanks bendibus ,thats exactly what was going through my mind.

So if a company took orders for say ,4000 units and sold them instantly . They would have that amount for a month gaining interest.

I was trying to figure out ,why certain internet retailers where claiming to have stock of stuff ,when clearly they hadnt.
All they can do then ,is build up an order for a thousand or so .Then sell the thousand instantly and retain the cash for the month.

Thanks for the reply.
Brian.