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Financial Literacy Understanding Basic Terms

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Tuesday, January 30, 2018


PER Annum, P.A or p.a. is the traditional and universal expression for an interest rate. Per Annum simply means "per year".

So, if a bank or licensed credit institution or another institution uses the p.a. expression it means that the rate would hold true if funds were invested for a whole year or 365 days (366 days in a leap year). As an example, you invest in a term deposit as follows;

Example 1. Term Deposit for $10,0000.00 for a term of 1 years at 4.25 per cent pa works as follows…. 10,000 x 0.0425 = 425 or $425 however a term of one year is easy to calculate as it is exactly one per annum, where it is more complex is where it is for part of a year…

Example 2. Term Deposit for $10,000.00 for a term of six months at 3.5 per cent pa is as follows …… 10,000 x 0.035 = 350 divided by 365 (or 366 in a leap year) x 182.5 (or 183 in a leap year) = 175 or $175

You simply divide the days in a year and multiply the amount of days the deposit will be held to work out the amount of gross interest you will receive. Where your term of investment is longer than a year you would do as follows….

Example 3. Term Deposit for $10,000.00 for a term of three years at 6 per cent pa …. 10,000 x 0.06 = 600 x 3 = 1800 or $1800 interest.

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