One Account - charging interest on interest

wiggers

Just had an interesting revelation (pardon the pun) from One Account. Did you know that they charge interest on the interest? When it says in your statement that the interest has been calculated for the current period and will be applied to your account the following month, they start charging you interest as if it has been applied to your account immediately! Then this interest gets added to the interest for the following period, no doubt accruing further interest.

Is this normal practice? It doesn't happen with Credit Card interest so why with mortgages?

getmore4less

Fairly normal for interest to be calculated daily and added once a month.

My barclays mortgage and all my Credit cards do it this way.(cc have some rules that mean no interest added if you pay the ballance in full for two consecutive months)

Once added you get charged interest on the new ballance.

CLAPTON

well presumably

they take the current balance
charge interest on a daily basis for the month
at month end then then form a new balance = old balance plus acrrued interest less monthly payment

then they repat the cycle for the next month and charged interest on the new balance in the same way

is that what you mean?

Saran_2

I had the same thought and had one account send me through a breakdown of how they charged me interest for a previous month. It turned out to be quite transparent. Interest is calculated daily at:

(outstanding balance x interest rate) / 365

e.g. £100,000 x 4.2% / 365 = £11.23 daily interest

They then total this for the interest period. Due to the notice period (approx 3 weeks) this is not shown on your account immediately, but interest is calculated as though it had been and added to your daily interest from then on as though it had already been taken from your account. So in effect interest is taken from the end of the month but doesn't appear on your statement for another 3 weeks.

Clear as mud

wiggers

Saran wrote: »

Interest is calculated daily at:

(outstanding balance x interest rate) / 365

The thing is, the outstanding balance on which they are charging interest is not what is shown when you go online or phone up. It includes the interest that will be applied to your account at some future date, so you are being charged interest on the interest. This is why is it wrong in my view. They are not doing what they say they are doing.