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  • FIRST POST
    • Cardew
    • By Cardew 24th Jan 13, 2:16 PM
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    Cardew
    Santander 123 account interest payments.
    • #1
    • 24th Jan 13, 2:16 PM
    Santander 123 account interest payments. 24th Jan 13 at 2:16 PM
    I have been unable to work out how Santander calculate their interest payments.

    The promotional literature for the 123 account states the following:


    Interest - on your current account balance:
    • 1.00% AER/gross (variable) on balances from 1,000
    • 2.00% AER/1.98% gross (variable) on balances from 2,000
    • 3.00% AER/2.96% gross (variable) on balances from 3,000 and up to a maximum
      of 20,000.
    Interest rates will apply on the first 20,000 of your entire balance once you have at least 1,000 in your account
    I sent this secure message to Santander


    Can you please explain how the 3% interest on balances in the 123 account works please.

    Your leaflet states: Interest - on your current account balance: "
    1.00% AER/gross (variable) on balances from 1,000

    2.00% AER/1.98% gross (variable) on balances from 2,000

    3.00% AER/2.96% gross (variable) on balances from 3,000 and up to a maximum of 20,000.

    Interest rates will apply on the first 20,000 of your entire balance once you have at least 1,000 in your account."

    If I have an average balance of, say, exactly 10,000 for the month. Do I get?:

    1,000 x 1% divided by 12

    2,000 x 2% divided by 12

    7,000 x 3% divided by 12

    Or 10,000 x 3% divided by 12.
    It did occur to me that it could mean no interest on the first 1,000, then 1% from 1,001 to 2,000, and 2% from 2,001 to 3,000 and 3% from 3,001 to 20,000.

    Their reply:




    Thank you for your email.

    I can confirm that if your balance is an average of 10,000 you will receive 3% Gross interest on the full balance.
    I hope this information is useful and if you have any other queries,
    This seems not to be happening for my account so I sent the following:


    Good afternoon and thank you for your prompt reply. I cannot reconcile your reply with the interest received on the two satements I have received since starting the 123 account.

    My Statement of 16 Jan 2013 shows an average credit
    balance of 13,994.85 and interest paid from 15/12/12 to 15/01/13 was 32.70.

    By my calculations 13,994.85 x 3% divided by 12 is 34.99 - a difference of 2.29

    My 15 Dec 2012 statement shows an average credit balance of 6,000.81 and interest paid of 13.72.

    Again by my calculations 6,000.81 x 3% divided by 12
    gives interest of 15 thus a difference of 1.28

    Could you please explain where our methods differ and if I(or you) are making a mistake.
    Anyone got any thoughts on this situation?
Page 1
    • apt
    • By apt 24th Jan 13, 2:32 PM
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    apt
    • #2
    • 24th Jan 13, 2:32 PM
    • #2
    • 24th Jan 13, 2:32 PM
    Is the average balance cleared funds? How many days is the 'month' covered by the statement? Annual interest of 3% is slightly lower than 3% divided by 12 per month as the latter would pay you interest on interest.
    • notbritishgas
    • By notbritishgas 24th Jan 13, 3:41 PM
    • 1,965 Posts
    • 854 Thanks
    notbritishgas
    • #3
    • 24th Jan 13, 3:41 PM
    • #3
    • 24th Jan 13, 3:41 PM
    Cardew, They work out the interest on a daily basis, so if above 3000 on a day you get 3% and so on. Then it is all added together and paid monthly. I do not know if that produces a different result than the average balance.

    This will give you the info

    www.santander.co.uk/csgs/StaticBS?blobcol=urldata&blobheader=application%2F pdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1223 428158824&cachecontrol=immediate&ssbinary=true&max age=3600
  • innovate
    • #4
    • 24th Jan 13, 3:46 PM
    • #4
    • 24th Jan 13, 3:46 PM
    I don't think interest gets calculated based on average balances. It is calculated daily, based on end of day balance.

    See clause 8.2 in the general Santander T&Cs
    http://www.santander.co.uk/csgs/StaticBS?blobcol=urldata&blobheader=application%2F pdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1223 428688943&cachecontrol=immediate&ssbinary=true&max age=3600
    Last edited by innovate; 24-01-2013 at 3:56 PM.
    • Cardew
    • By Cardew 24th Jan 13, 4:15 PM
    • 25,738 Posts
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    Cardew
    • #5
    • 24th Jan 13, 4:15 PM
    • #5
    • 24th Jan 13, 4:15 PM
    I don't think interest gets calculated based on average balances. It is calculated daily, based on end of day balance.

    See clause 8.2 in the general Santander T&Cs
    http://www.santander.co.uk/csgs/StaticBS?blobcol=urldata&blobheader=application%2F pdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1223 428688943&cachecontrol=immediate&ssbinary=true&max age=3600
    Originally posted by innovate
    Thanks.

    However what is the point of giving the 'average credit balance' on each statement? and the reply from Santander stating

    I can confirm that if your balance is an average of 10,000 you will receive 3% Gross interest on the full balance.
  • innovate
    • #6
    • 24th Jan 13, 4:30 PM
    • #6
    • 24th Jan 13, 4:30 PM
    Thanks.

    However what is the point of giving the 'average credit balance' on each statement? and the reply from Santander stating
    Originally posted by Cardew
    I have often asked myself what the relevance of an average credit balance on a statement is, but apparently this was something people did ask for, and it might even be something banks are required by law to provide to us now.


    But whatever - average credit balance is irrelevant to interest calculation.

    It's a load of old tosh to say "if your balance is an average of 10,000 you will receive 3% Gross interest on the full balance" - -- not least because the full balance is a complete unknown / variable.
    • ffacoffipawb
    • By ffacoffipawb 24th Jan 13, 4:40 PM
    • 2,253 Posts
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    ffacoffipawb
    • #7
    • 24th Jan 13, 4:40 PM
    • #7
    • 24th Jan 13, 4:40 PM
    I have often asked myself what the relevance of an average credit balance on a statement is, but apparently this was something people did ask for, and it might even be something banks are required by law to provide to us now.


    But whatever - average credit balance is irrelevant to interest calculation.

    It's a load of old tosh to say "if your balance is an average of 10,000 you will receive 3% Gross interest on the full balance" - -- not least because the full balance is a complete unknown / variable.
    Originally posted by innovate
    Using an example.

    Pay in 1,000,000 for one day and then withdraw it the next.

    Average balance for the month is over 20,000 but you won't get 20,000 x 3% / 12 = 50 gross

    You get 20,000 x 3% x 1 / 31 x 1 / 12 = 1.61 gross
    • Cardew
    • By Cardew 24th Jan 13, 5:17 PM
    • 25,738 Posts
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    Cardew
    • #8
    • 24th Jan 13, 5:17 PM
    • #8
    • 24th Jan 13, 5:17 PM
    I have often asked myself what the relevance of an average credit balance on a statement is, but apparently this was something people did ask for, and it might even be something banks are required by law to provide to us now.


    But whatever - average credit balance is irrelevant to interest calculation.

    It's a load of old tosh to say "if your balance is an average of 10,000 you will receive 3% Gross interest on the full balance" - -- not least because the full balance is a complete unknown / variable.
    Originally posted by innovate
    Firstly I had a Santander Zero current account(no currency charges for ATM withdrawals abroad) before the 123 account and 'average credit balance' was never given - even when there was interest given on that account.

    As a family we have several current accounts with different banks and again 'average credit balance' is not given.

    I am trying to get my head around this, but surely as long as I keep the balance above 3,000, then interest on the average balance will be the same as calculating daily interest and adding them up.

    As a simple example take a 30 day month, where for 15 days the balance is exactly 10,000 and for 15 days the balance is exactly 12,000, the average balance over the 30 day month is 11,000. Thus:

    10,000 x 3% divide by 365 x 15days = 12.33

    12,000 x 3% divide by 365 x 15days = 14.79

    Thus total interest is 27.12

    Now take an average balance as 11,000 Thus:

    11,000 x 3% divide by 365 x 30 days is 27.12
  • innovate
    • #9
    • 24th Jan 13, 5:30 PM
    • #9
    • 24th Jan 13, 5:30 PM
    The fact is that interest is calculated on a daily basis, against your balance at the end of each day. Then added up for each of your monthly statements (which is personal, not for calendar months, at Santander 123).

    The monthly sum of the calculated daily amounts of interest might resemble an amount calculated from an average monthly balance, but it is not how Santander (and/or most/all other banks) calculate your credit interest. See the link to the general T&Cs I posted earlier.
    • Cardew
    • By Cardew 24th Jan 13, 5:36 PM
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    • 12,337 Thanks
    Cardew
    Using an example.

    Pay in 1,000,000 for one day and then withdraw it the next.

    Average balance for the month is over 20,000 but you won't get 20,000 x 3% / 12 = 50 gross

    You get 20,000 x 3% x 1 / 31 x 1 / 12 = 1.61 gross
    Originally posted by ffacoffipawb
    Thanks. Yes I understand if you exceed 20,000 the excess is not counted.

    However in the example I gave for the 15 Dec statement Santander state that my average balance was 6,000.81 and the interest paid was 13.72. (and I didn't reach a figure of 20k in that month - or drop below 3k) So I cannot see how they reached that figure for interest.
    Last edited by Cardew; 24-01-2013 at 5:45 PM.
    • Cardew
    • By Cardew 24th Jan 13, 5:44 PM
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    Cardew
    The fact is that interest is calculated on a daily basis, against your balance at the end of each day. Then added up for each of your monthly statements (which is personal, not for calendar months, at Santander 123).

    The monthly sum of the calculated daily amounts of interest might resemble an amount calculated from an average monthly balance, but it is not how Santander (and/or most/all other banks) calculate your credit interest. See the link to the general T&Cs I posted earlier.
    Originally posted by innovate
    Yes I understand what you are saying, but I cannot see how calculating daily will give a different result to the average monthly balance - see the example of 15 days at 10,000 etc
  • innovate
    Look at the example posted here http://forums.moneysavingexpert.com/showpost.php?p=58862169&postcount=7
    • Cardew
    • By Cardew 24th Jan 13, 6:57 PM
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    Cardew
    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.
  • Hasty1991
    @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
    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.
    Originally posted by Cardew

    Fact remains this is not how Santander interest is calculated.
  • rb10
    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
    • By Cardew 25th Jan 13, 5:20 PM
    • 25,738 Posts
    • 12,337 Thanks
    Cardew
    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.
    Originally posted by rb10

    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?
    Last edited by Cardew; 25-01-2013 at 5:27 PM.
  • ponbeam
    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
    • By SnowTiger 26th Jan 13, 5:06 AM
    • 2,733 Posts
    • 1,739 Thanks
    SnowTiger
    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?
    Originally posted by Cardew
    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

    So, I'd guess Santander uses some other way to calculate it.
    Originally posted by SnowTiger
    Santander (and other banks) calculate interest on a daily basis. See their T&Cs.
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