Do "earmarked funds" attract interest?

charlie12

What I mean is, say for a Switch transaction, when a purchase is made on the Switch card, the funds are immediately earmarked, so that the "available to spend" amount is reduced in your bank account, but the main balance is unchanged until the transaction is fully processed. Now my question, say for example you're in your overdraft paying 15% interest.

Does "earmarked" funds attract interest, or does it only attract interest when the transaction actually appears?

The same question goes for credit cards, which I assume will work the same way.

Milarky

charlie12,

With credit cards it's easy to answer. Generally the 'transaction date' is what you see - and what you get charged interest from but only provided - of course - that you don't settle the balance in full! [no one here makes that mistake I would hope ] This is true even though card providers won't get the transaction information from the retailer for one or more days.. they apply the TD retroactively. Because the 'grace' [or interest-free] period on purchases can be 8 weeks it is unlikely [but not impossible] that you will ever buy something on credit but the card provider not 'bill' you until later than this... It's nearly always one or two days.

Now as to bank accounts [use of debit cards] - I find they differ from one another..

Nationwide BS: This seems to pay no credit interest on the earmarked amounts.

FD/A&L: They seem to pay credit interest for the period up until fund withdrawal.

If it does/does not pay credit interest then it is safe to assume that a particular bank account does not/does charge debit interest in the same way.

Nationwide is different by only paying interest once a year, which makes it difficult to know for certain, but having been charged debit interest by assuming that I wasn't overdrawn by the earmarked funds I think I'm right about that one.

MarkyMarkD

I'd be surprised if anyone uses the "earmarking" date as the date to adjust your interest bearing balance, as earmarking transactions may never become proper transactions - e.g. hotel transactions which are just to check you are credit-worthy when you check in.

Fatboy_NSS

You get interest until the funds leave your account. So if you pay by switch on a Friday night but the transaction doesn't go through until Monday then you get interest until Monday. After all the funds are still in your account so the bank would find it very hard to justify not paying interest during this time.

charlie12

Thanks guys, very helpful

hopefulfooluk

Beware of this - my Citi card T&C's say something like this:

"In calculating your outstanding balance we will take into account any amount already charged to your account plus any authorisations we have issued to retailers on your behalf"

From this I deduced that the outstanding balance they have and charge interest on includes these earmarked funds even before they fully debit your account.

So be careful!