I'm trying to understand the difference between the actuarial method and the U.S. Rule for calculating interest. I think the difference is that the actuarial rule adds unpaid interest to the principal balance and the US Rule does not. So the actuarial rule allows the charging of compound interest.
But I'm reading Neifeld's Guide to Instalment Computations (a book by an economist at a major lender back in the `50s) and it says this:
“The United States Rule prescribes the actuarial method. The rule is in essence a decision on the application of partial payments, their apportionment between charge and principal being the point at issue. Interest is computed on the unpaid balance, at the stated rate, for the elapsed time; it is equal to the action of the principal for one period multiplied by the stated rate. In instalment repayments, whether a discount or an add-on transaction, the actuarial method computes the rate which meets the condition of the United States Rule.” at 325
The first and last sentence of the above quote really confuses me - it sounds like the actuarial method and US rule are the same thing. But is he using "actuarial method" to refer to something else? For example, on another page in the book (p149), it describes the actuarial method as one of several ways "of distributing the credit cost in the amortization of a debt" (along with the direct ratio method, constant ratio method, and others).