leap year interest calculation

arjar

(Sorry if this is old hat. Did a search and didn't find it...)

I've just received payment of a matured bond. Checking the interest paid*, I discovered that although it works out perfectly for earlier and later periods, it seemed a little short for the year Oct 1st 2007 to Oct 1st 2008. On further investigation, it emerged that I have been paid interest on 365 days rather than the actual 366 during that period. (leap year so Feb 29th 2008 existed).

Now, the interest rate is described as annual. Everything works OK for periods that don't include Feb 29th. So I assume that they always assume that a year is 365 days and calculate every period (leap year or not) on this basis.

I wondered whether this was commonplace, or whether different organisations use different accounting conventions. Must be a nice little earner for the deposit takers every four years. I bet they don't give borrowers an interest holiday on Feb 29th! I'm tempted to pursue it as a matter of principal (I reckon they owe me £3.12 !). But maybe this windmill has been tilted at before. All advice welcome.

(* I always check whether the expected rate has been used, as many banks and BS's don't confirm anywhere in the paperwork the actual rate that has been applied and they don't always get it right!)

YorkshireBoy

http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=135&a=261&artpage=all (section 8)

Are you using AER or gross p.a. rates?

arcadia00

Coventry BS was the only place that ever cheated me over the leap year day. I say cheat, which I feel it is, but it was in their rules; I just missed it.

arjar

I'm using AER rates.

Nick_C

Don't see this as a cheat. If something is priced by the year, then once every 4 years the charging period is 366 days, not 365. Works both ways. You don't pay for the extra day when you pay Motor Insurance or Council tax for a period covering 29 Feb. If you are a business paying a quarterly rent, you pay the same amount each quarter, regardless of the number of days.

Does your contract of employment or pension specify an annual amount? Did you feel cheated because you didn't get an extra day's pay for this year?

Nick_C

sloughflint wrote: »

It seems it to me if they state they calculate interest daily. Do they make the balance drop to zero on 29/2 and then back to the previous day's balance on 1/3?

No. If the interest rate is quoted as annual, and calculated daily, then to work out the daily interest you divide the annual rate by the number of days in the year - which is variable.

A similar anomaly is that every seven years, we have a 53 week tax year. If you are paid weekly, your tax allowance is 1/53 of the annual amount instead of 1/52.

KingL

arjar wrote: »

I'm tempted to pursue it as a matter of principal

Surely as a matter of interest, no?

.

arcadia00

Nick_C wrote: »

Don't see this as a cheat. If something is priced by the year, then once every 4 years the charging period is 366 days, not 365. Works both ways. You don't pay for the extra day when you pay Motor Insurance or Council tax for a period covering 29 Feb. If you are a business paying a quarterly rent, you pay the same amount each quarter, regardless of the number of days.

Does your contract of employment or pension specify an annual amount? Did you feel cheated because you didn't get an extra day's pay for this year?

I meant it a cheat in terms of how Coventry treated me with respect to how the broader industry treated me. Apart from Coventry, I had three other one year bonds that leap year, and all paid me for the 29th Feb except Coventry Building Society.