Incorrect ISA interest.

Cardew

masonic wrote: »

I disagree. If you open and fund the account on the 31st March 2008, then you will get £100 on maturity.

I am not sure with what you are disagreeing!

Obviously IMO(and yours) you should get £100. However you don't!!

This is the whole point of the thread.

By using 1/366 for every day in 2008 NW 'contrive' to pay less than the declared rate for any sum invested from 31 Mar 2008 to 30 Dec 2008.

masonic

rb10 wrote: »

No, they are using the definition of AER as given by the BBA. See here (section 8):

Nationwide fit with this entirely:
- Interest is calculated on an 'actual/365' basis, where 'actual/365' is defined as above, to be /365 in normal years, and /366 in a leap year.
- The AER is calculated on an 'actual/365' basis, with the divisor as 365 in all years, whether or not it's a leap year.

So it is the code of conduct by the BBA that sets down this - the AER does not have to represent changes in the fact that interest is calculated differently in leap years.

I disagree with this on the basis that a 'leap year' must be a period of 1 calendar year that includes 29th February.

If you look at this page which includes the official formulae for calculating AER, the 'year' that is referred to is clearly the account year, not the calendar year.

Also note the following from the above link:-

A7. Where the AER varies according to the date of the deposit (for example, where an unconditional bonus is offered until a fixed calendar date):

* all advertising should include a statement that the AER assumes that investment was made on a specified date;
* the date specified should be
* -relevant to the date the advertisement or literature will appear or be available; and
* -not more than 1 month away from that date.
* -Advertisements showing a recalculated AER will need to be amended on a monthly basis.

So, if Nationwide insist on calcuating interest in the way that the seem to be doing, for accounts opened between March 2008 and the end of the calendar year the advertised AER should be recalculated on at least a monthly basis to take into account the slightly different actual rates paid.

masonic

Cardew wrote: »

I am not sure with what you are disagreeing!

Obviously IMO(and yours) you should get £100. However you don't!!

This is the whole point of the thread.

By using 1/366 for every day in 2008 NW 'contrive' to pay less than the declared rate for any sum invested from 31 Mar 2008 to 30 Dec 2008.

What I was disagreeing with was the method that had been reverse engineered for NW's interest calculation. In your case at least, it can be explained by your account being open and unfunded on 29th Feb 2008. However, if others have held accounts opened after February and still been paid less than 365 full calendar days interest in their 365 calendar day account year, then I'm in complete agreement with you that NW are not applying interest in the way that they should be.

rb10

masonic wrote: »

I disagree with this on the basis that a 'leap year' must be a period of 1 calendar year that includes 29th February.

If you look at this page which includes the official formulae for calculating AER, the 'year' that is referred to is clearly the account year, not the calendar year.

Agreed, it would seem to fit more if they used /366 where the interest calculation period spanned 29th Feb - e.g. using /366 for 31st March '07 to 31st March '08. But then there are problems when interest is paid twice a year, e.g. Smart account, 30th June & 31st Dec, obviously the first half of 2008 gets /366, but do you apply this to the second half of 2007 or the second half of 2008? It gets complicated.

Also it wouldn't solve the problem, but would just change the dates around a little, and cause a lot more complication.

Also note the following from the above link:-

[...]

So, if Nationwide insist on calcuating interest in the way that the seem to be doing, for accounts opened between March 2008 and the end of the calendar year the advertised AER should be recalculated on at least a monthly basis to take into account the slightly different actual rates paid.

I don't agree with this bit, as obviously your quote conflicts with mine in post 71 ("the AER should nonetheless be calculated on an actual/365 basis"), but as my one specifically covered the thing of changing an AER for leap years - and said it wasn't necessary - I think that would take precedence.

So I still think they are perfectly entitled to carry on exactly as they are.

vincit_veritas

I had a one year bond with Nationwide - fixed interest on a nice round number of ££s - but still the amount of interest was wrong.

They stonewalled my queries.

I pointed out to them than by effectively refusing to explain how they calculated my interest, they were in breach of the Banking Code; that since they frequently sent me a leaflet about the code with their mailouts, perhaps they would care to familiarise themselves with it. (clause 4.3 of the Banking Code reads "If you ask us, we will also give you a full explanation of how we work out interest.") Still, they wouldn't give me a straight answer, inviting me instead to invoke their complaints procedure.

They need to stop spending members' money singing their own praises in their ridiculous advertising campaigns, and concentrate instead on raising their game: I have money deposited with several building societies and banks, and have found over the past ten years or so that Nationwide consistently offer the worst service, both in branch, by telephone and online. Even their e-savings interest rates no longer compare well with what's on offer elsewhere - no wonder, when you imaging what they must spend on advertising. It is my view that they have expanded beyond their capabilities: they may be the biggest, but sadly that doesn't necessarily mean that they have a clue what they are doing. They are a building society, and ought to concern themselves with personal finance, not high finance.

rb10

vincit_veritas wrote: »

I had a one year bond with Nationwide - fixed interest on a nice round number of ££s - but still the amount of interest was wrong.

They stonewalled my queries.

I pointed out to them than by effectively refusing to explain how they calculated my interest, they were in breach of the Banking Code; that since they frequently sent me a leaflet about the code with their mailouts, perhaps they would care to familiarise themselves with it. (clause 4.3 of the Banking Code reads "If you ask us, we will also give you a full explanation of how we work out interest.") Still, they wouldn't give me a straight answer, inviting me instead to invoke their complaints procedure.

Maybe you could post the amount you had in the account, and the relevant dates and rates, so we could try to work out how they calculated it?

vincit_veritas

Hi, rb10,
Here goes:
£42k, 051007-051008, 6.7%gross (those were the days!!!)

Shortly before the end date, they notified me the projected interest was 2808.16. The actual amount was 2815.85. Fixed amount, fixed interest rate, fixed term. So, why the difference, why is neither amount 6.7% of 42000 (or even 366/365 of that amount), and why won't/can't Nationwide explain their calculation method when requested to do so?

masonic

rb10 wrote: »

Agreed, it would seem to fit more if they used /366 where the interest calculation period spanned 29th Feb - e.g. using /366 for 31st March '07 to 31st March '08. But then there are problems when interest is paid twice a year, e.g. Smart account, 30th June & 31st Dec, obviously the first half of 2008 gets /366, but do you apply this to the second half of 2007 or the second half of 2008? It gets complicated.

Also it wouldn't solve the problem, but would just change the dates around a little, and cause a lot more complication.

I think you've slightly misinterpreted the point I was trying to make. I have no problem with the method NW uses when the account is open on 29th Feb. And when it isn't, the problems you describe are not an issue as the account year can be treated in exactly the same way as a normal 365 day year - there is no extra day to deal with.

I don't agree with this bit, as obviously your quote conflicts with mine in post 71 ("the AER should nonetheless be calculated on an actual/365 basis"), but as my one specifically covered the thing of changing an AER for leap years - and said it wasn't necessary - I think that would take precedence.

So I still think they are perfectly entitled to carry on exactly as they are.

Again, when the account is open on 29th February, I don't think this is an issue. The bit I disagree with is that after 29th February, new accounts should not have interest paid following the 'leap year' provisions.

masonic

sloughflint wrote: »

Ok, remove the leap year aspect.
Wouldn't there be 365 different AERs due to the fact that interest is paid on a specific date and that will affect interest paid? Not very practical.

Not really, because if interest is paid on any date other than the anniversary more interest results, never less.

rb10

vincit_veritas wrote: »

Hi, rb10,
Here goes:
£42k, 051007-051008, 6.7%gross (those were the days!!!)

Shortly before the end date, they notified me the projected interest was 2808.16. The actual amount was 2815.85. Fixed amount, fixed interest rate, fixed term. So, why the difference, why is neither amount 6.7% of 42000 (or even 366/365 of that amount), and why won't/can't Nationwide explain their calculation method when requested to do so?

Hmm, can't get this one exactly there. I am assuming that this is an e-Bond, as there doesn't seem to be compounding of interest on 31st March.

5th October 2007 to 31st December 2007: 87 days, so the calculation is:
42000 * 0.0617 * 87 / 365 = 670.7342

31st December 2007 to 5th October 2008: 279 days, so the calculation is:
4200 * 0.0617 * 279 / 366 = 2145.098

So the total by my calculation is £2815.83, not sure why you got the extra 2p.