Calculation of compound interest

[imsorryiasked]

Can anyone confirm the correct way to calculate compound interest? (The creditor has provided a schedule but I don't think it's right). The agreement states "the sum X together with compound interest at the rate of 1% per annum above the base rate from time to time to be calculated with half yearly rests"
I think the interest should therefore only be added to the original sum every half year?
But should the interest be calculated on a continuous basis ie 46 days at 5%, 73 days at 5.25% etc, or just at the rate in force at the half year, or something else?
This is an old debt relating back 25 years which I am trying to sort out for a relative, the interest being demanded is twice the original debt

£100 at 2% interest will become £100 x 1.022, where 1.02 = 1+2% and = to the power of.

What is the definition of base rate? Reset every 6 months means the base rate gets updated every 6 months. It doesn't necessarily mean interest is payable every 6 months - that will be defined somewhere else in the contract. As with any contract, the devil really is in the details.

Base rate is NatWest bank rate. I have all the rates, it's more whether the interest should be calculated at the rate in force on the half year rest, or calculated on the daily rate and only added in at the half year.

Hopeful bump for the morning crowd

It could be as you say that it's calculated daily at the rate each day but only added for the purpose of compunding every six months.

Have you tried setting up a spreadsheet to see if you can confirm the figures?

Hi Patti, Yes they have only added it in on the half year but I need to know whether they should be using the interest figure as at the half year rather than each interest rate in force. As this goes back so far the difference in the interest rate can be up to 2.5% over a six month period.

www.google.com/amp/s/blog.bankbazaar.com/rest-in-a-home-loan/amp/
From this RESTS refers to the point at which the interest is added.

From the wording "1% above the base rate from time to time", my reading would be that was the base rate changes so does the interest rate.
So for any half yearly period you might have interest at x% for 2 months, y% for 1 month and z% for 3 months - depending on the base rate movements.

Thanks @chasingsquirrels

I don't know if there's a legal answer and maybe common sense doesn't apply but I'd expect that it would change with changes in the base rate.

Does the lender still exist - could you ask them?

Should have said that is only my lay-person reading/reasoning though.