Egg savings interest

oldfella

does anyone know if there is anything unusual in the way Egg calculate savings interest ?

my 6.3% account has just matured and its about £25 lower than I make it. It works out at about 3 days lost interest, which would be explained by them clearing faster payments at the same rate as cheques.

The T&Cs state that FPs clear for interest instantly.

I have assumed 366 days in 2008, and 365 in 2009.

thanks Mike

YorkshireBoy

Seem to remember they (unusually?) compound daily. Could it be a rounding error?

Also seem to remember it being reported on here before. A forum search should find the thread.

oldfella

tried a search - gave up.

when I complained the guy mentioned daily compounding - I didnt see the relevance. Presumably the supposed benefit of daily compounding ends up in you receiving less than the AER figure ?

that might be an interesting debate with Egg - we shall see.

YorkshireBoy

oldfella wrote: »

tried a search - gave up.

http://forums.moneysavingexpert.com/showthread.html?t=905715&highlight=egg+interest+calculation&page=2

See post #39 onwards. Looks like you contributed to that thread as well.

charlieboycat

Egg do indeed calculate interest by compounding daily (albeit only crediting annually). The consequent reduction in the gross rate means you don't actually get the headline AER unless the money is there for a full 12 months.

Milarky

Although the interest rate is somewhat reduced compared to the more usual 'accrued daily' accounts, it's important to put this into perspective. 6.30% is/was a great rate in current circumstances.

If £1 was deposited on the 364th day (say) then the rate this earns is only reduced by 6.3% compared to the 'flat' rate assumption - that is the last day's interest earns (effectively at a flat rate) of 6.3%/(1.063) - that is 5.93%

So whilst every pound earns at least 5.93% (or 6.3% at the very start) as a crude rule of thumb, the average interest earned will therefore be 6.2% (because that is the rate to maturity of a 'median pound' - one invested on day 183)

dazeruk

oldfella wrote: »

does anyone know if there is anything unusual in the way Egg calculate savings interest ?

my 6.3% account has just matured and its about £25 lower than I make it. It works out at about 3 days lost interest, which would be explained by them clearing faster payments at the same rate as cheques.

The T&Cs state that FPs clear for interest instantly.

I have assumed 366 days in 2008, and 365 in 2009.

thanks Mike

Are you able to give any details?

Amount deposited and when?
Date of interest payment and amount?
How much you calculate and what method?

oldfella

Milarky is correct - I am getting very close to 6.2%

the calculation I use is: amount * .063 / 365 * number of days - this works for 6.3% gross/AER

I will ask them how they can describe the return as 6.3% gross/AER when its actually 6.11 gross

SnowMan

I suspect the Egg method to calculate interest on an amount from one date to another date will be along the following lines (in a spreadsheet):

Cell
A1 = amount
A2 = interest rate (format as percentage), enter the 6.3% AER here rather than the gross rate as this is the true annual rate
A3 = date interest from
A4 = date interest to

Then gross interest on each payment is calculated by the formula

=A1*(1+A2)^((A4-A3)/365.25)-A1

And net interest is 0.8 times this figure

The 365.25 is to allow for leap years (but can use 365 if you prefer it makes little difference)


In practice most other banks work out interest on a daily basis (for historical reasons) but this formula is arguably the "correct" formula and is probably very close to what Egg are using.

oldfella

quick update on discussions with Egg - they are maintaining that the interest rate is correctly advertised as 6.3% gross/AER. I am argueing that I have been misled as the gross figure is 6.11%, which means I have received less interest than I had been led to believe.

they are sending me details of their calculation.

assuming I am then still not happy I will make a formal complaint.

Milarky

oldfella wrote: »

Egg - they are maintaining that the interest rate is correctly advertised as 6.3% gross/AER. I am arguing that I have been misled as the gross figure is 6.11%, which means I have received less interest than I had been led to believe.

Not true, the details of how Egg calculates interest are all there in the small print. And, from memory, this has been the method used by Egg since at least 2002 - when I opened my first savings account with them and read about the daily 'compoundage' method at the time. Had you left the opening deposit untouched the interest earned would have been 6.3% exactly

They are sending me details of their calculation.

assuming I am then still not happy I will make a formal complaint.

Since there has been no misrepresentation as to the method, the issue is simply whether 5.93% compounded daily really equal '6.3% AER' - and it does so Egg are entitled to describe the rate as '6.3% AER'

(Good luck with your complaint....)