Quiz: Do you have the A-Level maths skills needed to understand your bank?

 
Lynsey Barber
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Good maths skills are needed to understand even basic bank products (Source: Getty)

If you've ever fretted about your finances, you can breath a sigh of relief - from APRs to ISAs and every acronym in between, understanding bank statements requires an A-Level knowledge of maths, it turns out.

Jargon terms are making it impossible for most people to judge whether they are getting a good deal from their bank.

More than three quarters of us have a credit agreement in the form of a mortgage, loan or credit card, but 86 per cent admitted that they had little understanding of what representative APR is, for example, according to research by digital challenger bank Tandem.

Read more: Quiz: Can you answer these tough new Cambridge entrance exam questions?

No wonder then, that 94 per cent of people think banks should use simpler language.

And a professor of mathematics has now demonstrated the difficulty of some of the concepts involved in understanding financial products, in the form of an exam paper demonstrating the skills you need.

“The general public requires a consistently high level of mathematics to understand and make sense of some fairly common financial situations," said the University of Bath's Dr Christian Yates.

"Not only do they have to get their heads around the myriad terms and acronyms that banks use, but they often need to have A-Level standard maths to accurately understand the ramifications of banking products, or simply how to best manage their finances. Even at degree level, students would struggle with some of these problems which require long, complicated calculations.”

The many misunderstandings of finance include, 44 per cent who could not classify correctly how base rates work, almost half did not understand share prices or tracker mortgages, and a third did not know that ISA stands for Individual Savings Account, the survey of 2,000 people reveals.

Think your maths is good enough to understand basic banking? Take the quiz below to find out, based on the professor's exam paper.

Q1

You are trying to choose between three mortgage offers. You want to borrow £200,000 and can afford to make monthly repayments of £1000. In each case the mortgages will be fixed for two years. Repayments are made each month and interest is calculated monthly. Any arrangement fee will be added to the total amount borrowed. You have three mortgage offers to choose from, which will you have paid of the most with after the end of the two years?

Q2

You have £10,000 to invest. You have found three investment options with different rates of interest compounding. You intend to invest for 10 years. Which of the three options will give you the best return on your investment at the end of the 10 year period?

Q3

Peter is going to university and wants to buy himself a new speaker system for his room. He decides to take out a loan for £500 to pay for it. Peter would like to pay the money back by the end of his degree course (36 months). The bank offers Peter the loan at an APR of 5%. Peter can afford repayments of £15 per month. Can he afford to take out this loan?

Q4

You need to pay £3000 quickly. You decide the best way to do this will be to pay on your credit card, making the minimum repayment only for 6 months. You hope to be in a position to pay off the debt. The interest rate on money borrowed on your credit card is 17.5% per annum. The minimum repayment per month is the interest, plus an additional £5. Interest is compounded continuously. How much interest have you paid in total by the end of the 6 months?

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