Santander 123 account interest payments.

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  • Cardew
    Cardew Posts: 29,036
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    innovate wrote: »

    Yes I read that(post#7) and replied in Post#10.

    If you keep the balance above £3k and below £20k then the average balance is the same as the adding the total balance each day and dividing by the number of days.

    i.e.
    Day 1 - £4k balance
    day 2 - £5k
    day 3 - £6k
    day 4 - £5k
    day 5 -£10k

    Total is £30k over 5 days so average balance over period is £6k.

    I cannot see that calculating interest for each of the 5 days and adding them up will be different to calculating interest for £6k and multiplying that figure by 5.
  • @Original poster. You need to gain an understanding of the terms involved here.

    AER = Annual Equivalent Rate, this figure is achieved by including the good old concept of compound interest, as interest is paid each month on the 123 account, not yearly (AER is relevant to a complete years interest only). Unfortunately it's not as simple as expecting one twelfth of the full 3% nor even is helpful to work out the interest per day. You have to account for the ungained interest as a result of not looking at the whole year - by month twelve interest will have been paid on your first months interest eleven times, and so on and so forth.

    Hope this helps.
  • innovate
    innovate Posts: 16,217
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    Cardew wrote: »
    Yes I read that(post#7) and replied in Post#10.

    If you keep the balance above £3k and below £20k then the average balance is the same as the adding the total balance each day and dividing by the number of days.

    i.e.
    Day 1 - £4k balance
    day 2 - £5k
    day 3 - £6k
    day 4 - £5k
    day 5 -£10k

    Total is £30k over 5 days so average balance over period is £6k.

    I cannot see that calculating interest for each of the 5 days and adding them up will be different to calculating interest for £6k and multiplying that figure by 5.


    Fact remains this is not how Santander interest is calculated.
  • rb10
    rb10 Posts: 6,334 Forumite
    The gross interest rate on this account is 2.96% - this is the figure that you need to use.

    Rather than simply dividing by 12, you will need to divide by 365*, and multiply by the number of days in the month.

    * Note - it is possible that you would need to divide by 366 rather than 365 for the days in 2012, as that was a leap year. It depends on how Santander's system treats leap years.

    An initial step would be to check that the 'average' balance given on your statement is indeed calculated correctly. Feel free to post (an edited copy of) your statement on here (or PM) if you want a hand with the calculation or want a second pair of eyes to check that what you have done is correct.

    Also consider - did you pay in any cheques during the month? This could affect the interest paid.

    For a different reason, I was under-paid interest by Santander last year. Am happy to help you to discover whether you have been too.
  • Cardew
    Cardew Posts: 29,036
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    edited 25 January 2013 at 5:27PM
    rb10 wrote: »
    The gross interest rate on this account is 2.96% - this is the figure that you need to use.

    Rather than simply dividing by 12, you will need to divide by 365*, and multiply by the number of days in the month.

    * Note - it is possible that you would need to divide by 366 rather than 365 for the days in 2012, as that was a leap year. It depends on how Santander's system treats leap years.

    An initial step would be to check that the 'average' balance given on your statement is indeed calculated correctly. Feel free to post (an edited copy of) your statement on here (or PM) if you want a hand with the calculation or want a second pair of eyes to check that what you have done is correct.

    Also consider - did you pay in any cheques during the month? This could affect the interest paid.

    For a different reason, I was under-paid interest by Santander last year. Am happy to help you to discover whether you have been too.


    Thanks for the above.

    Firstly in the T&Cs Santander use 365 days and 366 in a leap year.
    8.3 For the purpose of calculating interest we work on the basis that there are 365 days in a year, unless it is a leap year where interest is calculated on a 366 day basis.

    Next taking the period from 15th Nov to 15 Dec 2012 Santander give an amount of £6000.81 on my statement as the average credit balance.

    During that period the balance did not drop below £4,000 or exceed £10,000 and I did not pay any cheques into my account.

    Taking that figure of £6,000.81 the calculation should be:

    £6,000.81 x 0.0296 / 366 x 30 = £14.56. As stated above I was paid £13.72 interest

    The Statement to 15 Jan gave an average credit balance of £13,994.85.

    However on a few days I exceed the £20,000 by a small amount - well under £100 and for no more than 1 day. The balance didn't drop below £7,000 and again no cheques paid into my account.

    The same calculation (£13,994.85 x 0.0296 /366 x 31) = £35.09. I was paid £32.70.

    Even if you reduced the average balance by £100 to account for exceeding £20k(and it would not be that much) the figure for interest due would be £34.84.

    As for checking Santander's average credit balance, why would they give that statistic if it were not the basis for their interest calculation?

    Thoughts?
  • ponbeam
    ponbeam Posts: 98 Forumite
    The interest is calculated daily and credited monthly.
    The daily interest rate i believe is 0.00810959 so the day it was 4k the interest would have been 32p.
    The monthly average balance is just a red herring and is not used to calculate the interest
  • SnowTiger
    SnowTiger Posts: 4,458
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    Cardew wrote: »
    As for checking Santander's average credit balance, why would they give that statistic if it were not the basis for their interest calculation?

    Thoughts?

    Unfortunately I've only recently opened my Santander 123 account and haven't earned interest, however...

    The Average balance for the month figures Santander give on my first 123 statement and previous Preferred Account statements don't appear to be what I would expect: the total of the balance at the end of each day divided by the number of days during the statement period.

    So, I'd guess Santander uses some other way to calculate it. Things which may make a difference are: how Santander treats weekends and bank holidays and at what time of the day a snapshot of the account balance is taken to be used in the calculation. Is it calculated several times a day, perhaps after every transaction? And when does a Santander banking day begin? Midnight?

    These are questions that only Santander will have answers to. And I suspect the front line troops won't know them.

    If I were you I'd write to them (letter in the post) asking how the Average balance for the month is calculated and how they calculate interest. But I wouldn't give any example figures because I think that would just confuse the issue. They'll probably respond with a leaflet detailing their interest rates and tell you it's all calculated in line with banking standards, or something equally as unhelpful. So be prepared to write again asking for more specific information.
  • innovate
    innovate Posts: 16,217
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    SnowTiger wrote: »

    So, I'd guess Santander uses some other way to calculate it.

    Santander (and other banks) calculate interest on a daily basis. See their T&Cs.
  • If at any time the balance was below the £3000 threshold, interest would accrue at the the 0% on days below £1000, 1% on days below £2000, and 2% on days below £2000.
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