Bradford & Bingley - Interest in Leap Years

pulse876

I’ve had an Internet Saver Account with Bradford and Bingley since the beginning of this year. Interest was added to the account in July but I couldn’t work out how they had calculated the amount so I emailed them to ask. They sent me a letter which set out the calculation.Part of the calculation involved the number of days between 1st February and 1st March inclusive. The letter said that was only 29 days. But of course 2008 is a leap year so it is actually 30 days. I phoned them and queried this and, after checking, the person I spoke to agreed that it was a mistake and that they would add an extra days interest onto my account. I was slightly surprised at this because I couldn’t see why my account was in any way unusual and so if they had calculated my interest incorrectly then I thought they must have done the same with all their other similar accounts. It also became apparent in the phone call that the daily rate of interest is (annual rate/365)% even in leap years. So I was therefore being told that in leap years they actually pay 366 days interest at a daily rate of (annual rate/365) (which I know is the approach used by some other banks/building socities).But nothing was credited to my account so I phoned up again. This time I was told that the person I had spoken to before had made a mistake and that the calculation they had originally sent me was correct. When I queried this (my problem being that the person I was speaking to in their call centre seemed to have a very poor grasp of anything to do with interest) I was told that they don’t actually pay any interest on 29th February.Now I can understand if they say our daily rate of interest is always (annual rate/365)% (in leap years and non-leap years) and they pay that rate every day. That simply means they pay the annual rate in non-leap years and (366/365)*(annual rate) in leap years.I can also understand if they say our daily rate of interest is (annual rate/365)% in non-leap years and (annual rate/366)% in leap years. That simply means they pay the annual rate every year.But what I’m being told is that Bradford and Bingley actually pay interest at a daily rate of (annual rate/365)% every day in a leap year except that they pay no interest at all on 29th February. So in a full year you receive the annual rate. But if you only have the money in the account for part of a year then you effectively get a lower rate.If, for example, you only invest the money with them on 28th and 29th February then you effectively only get half the published rate. And if you put some money in the account for just one day (29th February) then you get no interest at all.That surely cannot be a reasonable way to operate? It is not logical. Can anyone confirm that Bradford and Bingley actually do calculate interest in this manner?

isofa

You need to edit your post, put in some paragraphs to make it easier to read.

Rafter

Since the AER% is the same whether they use 365 days and pay no interest on 29 February of whether they use 366 days I don't think they are being unfair.

Since most of their savings funds mortgages where customers expect a constant monthly payment and not to pay a further days interest in february then it seems fair that they do the same on the savings side.

One days interest on £10,000 is £1.64 or 98p net of tax at 40%

Since each call to their call centre and each letter probably costs £1 a pop you seem to have caused a lot of bother over a very small sum.

I agree that a customer depositing a very large sum on 28 February and withdrawing it in early March could loose out, but the vast majority of customers who keep their savings in their all year would be no better or worse off.

R.

dag_2

Since most of their savings funds mortgages where customers expect a constant monthly payment and not to pay a further days interest in february then it seems fair that they do the same on the savings side.

Take your point, but to my way of thinking, that begs the question of how they calculate the mortgage interest.

I suppose up until now, I've naively assumed that the daily rate goes 365.2425 times into the annual rate, so that it averages out correctly over the full 400 years of the Gregorian Calendar cycle. Then again, the Gregorian Calendar has yet to be in operation for its first full 400 year cycle in the UK, although it's already clocked up over 400 years in Italy and Spain. Who's to say it's not going to change in the future?

And if they averaged out the leap years to give a fixed daily rate, then the annual rate would never be that accurate. Tax is usually done on yearly cycles, so I suppose it makes sense to fix the annual rate, and then derive some sort of daily rate from that, rather than the other way round - that is, rather than fixing the daily rate and deriving the annual rate.

How does it work in wholesale markets though?

I'm going to stick up for the newbie here, and say that the principle is important. I for one don't mind how they do the daily calculation, as long as it's clear.

That said, if different banks do it in a different way, then you might theoretically be able to save a few pennies by transferring money between different banks at different times of the year, but in practice you'd probably lose more interest than that in the time it takes for your money to move from one account to another.