Balance plummeting - interest going up?!

rsjg80

I have a joint account with my ex of which I have taken full responsibility for. The intention is to get it paid off as quickly as possible.

The account has only seen two actions since September 2011, me putting £200 in a month, NatWest taking out interest.

But despite the overall balance falling, the amount of interest Natwest take is actually rising. How does this work?

For example, the last few months:

28th March £200 in.
16th April £61.45 interest.
27th April £200 in
15th May £64.04 interest

Every other month seems all over the place too. How can a balance that is going down £140 a month since September be accruing equal or more interest a month?

Cheers for any explanation!

MoneySaverLog

Does seem odd, only explanation I can think of is increase in interest rates. Have you asked NatWest?

YorkshireBoy

You'd need to post up all figures from last September to date to get a definitive answer, but until you do my best guess would be...

1. They operate 21 days in arrears (according to their T&Cs), so the interest may be out of synch with your deposits, and

2. There are a different number of days in some statement periods (due to weekends, Bank Holidays, etc).

opinions4u

Size of balance.

Number of days in accounting period (affected by weekends and ank holidays).

Interest rate.

The date the charge is applied. Often a few weeks after the accounting period.

Work that out and you'll probably get your answer.

rsjg80

I can only go back as far as October:

October 28th £100 in (balance -£4706.77)
November 14th £69.44 interest (balance -£4776.21)
November 28th £150 in (balance -£4626.21)
December 15th £73.61 interest (balance -£4699.82)
December 21st £150 in (balance -£4549.82)
January 13th £76.64 interest (balance -£4626.46)
January 26th £200 in (balance -£4426.46)
February 14th £64.26 interest (balance -£4490.72)
February 28th £140 in (balance - £4350.72)
March 16th £73.68 interest (balance -£4424.40)
March 28th £200 in (balance -£4224.40)
April 13th £61.45 interest (balance -£4285.85)
April 27th £200 in (balance -£4085.85)
May 15th £64.04 interest (balance -£4149.89)

Is this perfectly normal? Just seems odd that the balance is going down so regardless of any other factors the interest should always go down. For example, in Feb I paid £64.26 in a balance of -£4426, yet my latest interest (May) is just 20p cheaper on a balance that is nearly £350 less.

Surely at 20p interest per every £350 my interest every month should only be £10 odd lol

Just seems very confusing to me.

JuicyJesus

What you need to do is find out how much interest you are paying per day. Multiply the daily rate of interest (the gross monthly rate, NOT the AER, times 12 and then divided by 365.25) by the balance, do this for each day (or multiply by the number of days the account is at that balance) then sum it up. It should all then make sense.

As o4u says there are numerous reasons for the interest to differ. Each interest payment debited will be for a charging period which started almost two months ago, and several months have different days (bank holidays and non-working days usually count for interest charging, so those won't have anything to do with it).

YorkshireBoy

Looks OK to me, but...

1. What's your statement date?

2. What's the overdraft EAR?

YorkshireBoy

JuicyJesus wrote: »

What you need to do is find out how much interest you are paying per day. Multiply the daily rate of interest (the gross monthly rate, NOT the AER, times 12 and then divided by 365.25) by the balance

There's an easier way than that.

Use the 'nominal annual rate' (see page 23 of your T&Cs) and divide it by 365.

The interest accruing each day will then be:

Closing balance x NAR / 365

Sum up the 28/29/30 whatever days in the charging period and there's your interest to be debited 21 days after the statement is produced.

rsjg80

Well seeing as it's not screaming out as odd to anyone else, I'll leave it. Nothing I can do about it anyway. Just keep paying it off until it's gone.

Just didn't make any sense to me, but then again money/ numbers clearly are not my strong point!

No idea what the EAR is, not that I can do much about it anyway as can't move accounts at the moment or get cheap loan. It's only in the last two years I've been able to get a very messy financial history into some semblance of order; paying £200 a month off on this account, paying £250 a month on other accounts AND saving money is a far cry from the days where I was hiding from letters - and all without the help of debt companies!!

One day I may get to the point where it's all savings!

jonesMUFCforever

Do you know the APR on this overdraft - ask the bank whether a loan might be cheaper. You could also overpay to further reduce the interet cost.

rsjg80

jonesMUFCforever wrote: »

Do you know the APR on this overdraft - ask the bank whether a loan might be cheaper. You could also overpay to further reduce the interet cost.

No, don't know APR - but like I said before, it's irrelevant now anyway. Can't get bank to convert it to loan as a) my financial history isn't great and b) it's a joint account and my ex and myself haven't spoken in a long time.

Thanks for all your help.