Santander 123 account interest payments.

Cardew

I have been unable to work out how Santander calculate their interest payments.

The promotional literature for the 123 account states the following:

Interest - on your current account balance:

• 1.00% AER/gross (variable) on balances from £1,000
• 2.00% AER/1.98% gross (variable) on balances from £2,000
• 3.00% AER/2.96% gross (variable) on balances from £3,000 and up to a maximum
  of £20,000.

Interest rates will apply on the first £20,000 of your entire balance once you have at least £1,000 in your account

I sent this secure message to Santander

Can you please explain how the 3% interest on balances in the 123 account works please.

Your leaflet states: Interest - on your current account balance: "
1.00% AER/gross (variable) on balances from £1,000

2.00% AER/1.98% gross (variable) on balances from £2,000

3.00% AER/2.96% gross (variable) on balances from £3,000 and up to a maximum of £20,000.

Interest rates will apply on the first £20,000 of your entire balance once you have at least £1,000 in your account."

If I have an average balance of, say, exactly £10,000 for the month. Do I get?:

£1,000 x 1% divided by 12

£2,000 x 2% divided by 12

£7,000 x 3% divided by 12

Or £10,000 x 3% divided by 12.

It did occur to me that it could mean no interest on the first £1,000, then 1% from £1,001 to £2,000, and 2% from £2,001 to £3,000 and 3% from £3,001 to £20,000.

Their reply:

Thank you for your email.

I can confirm that if your balance is an average of £10,000 you will receive 3% Gross interest on the full balance.
I hope this information is useful and if you have any other queries,

This seems not to be happening for my account so I sent the following:

Good afternoon and thank you for your prompt reply. I cannot reconcile your reply with the interest received on the two satements I have received since starting the 123 account.

My Statement of 16 Jan 2013 shows an average credit
balance of £13,994.85 and interest paid from 15/12/12 to 15/01/13 was £32.70.

By my calculations £13,994.85 x 3% divided by 12 is £34.99 - a difference of £2.29

My 15 Dec 2012 statement shows an average credit balance of £6,000.81 and interest paid of £13.72.

Again by my calculations £6,000.81 x 3% divided by 12
gives interest of £15 thus a difference of £1.28

Could you please explain where our methods differ and if I(or you) are making a mistake.

Anyone got any thoughts on this situation?

apt

Is the average balance cleared funds? How many days is the 'month' covered by the statement? Annual interest of 3% is slightly lower than 3% divided by 12 per month as the latter would pay you interest on interest.

notbritishgas

Cardew, They work out the interest on a daily basis, so if above £3000 on a day you get 3% and so on. Then it is all added together and paid monthly. I do not know if that produces a different result than the average balance.

This will give you the info

www.santander.co.uk/csgs/StaticBS?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1223428158824&cachecontrol=immediate&ssbinary=true&maxage=3600

innovate

I don't think interest gets calculated based on average balances. It is calculated daily, based on end of day balance.

See clause 8.2 in the general Santander T&Cs
http://www.santander.co.uk/csgs/StaticBS?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1223428688943&cachecontrol=immediate&ssbinary=true&maxage=3600

Cardew

innovate wrote: »

I don't think interest gets calculated based on average balances. It is calculated daily, based on end of day balance.

See clause 8.2 in the general Santander T&Cs
http://www.santander.co.uk/csgs/StaticBS?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1223428688943&cachecontrol=immediate&ssbinary=true&maxage=3600

Thanks.

However what is the point of giving the 'average credit balance' on each statement? and the reply from Santander stating

I can confirm that if your balance is an average of £10,000 you will receive 3% Gross interest on the full balance.

innovate

Cardew wrote: »

Thanks.

However what is the point of giving the 'average credit balance' on each statement? and the reply from Santander stating

I have often asked myself what the relevance of an average credit balance on a statement is, but apparently this was something people did ask for, and it might even be something banks are required by law to provide to us now.


But whatever - average credit balance is irrelevant to interest calculation.

It's a load of old tosh to say "if your balance is an average of £10,000 you will receive 3% Gross interest on the full balance" - -- not least because the full balance is a complete unknown / variable.

ffacoffipawb

innovate wrote: »

I have often asked myself what the relevance of an average credit balance on a statement is, but apparently this was something people did ask for, and it might even be something banks are required by law to provide to us now.


But whatever - average credit balance is irrelevant to interest calculation.

It's a load of old tosh to say "if your balance is an average of £10,000 you will receive 3% Gross interest on the full balance" - -- not least because the full balance is a complete unknown / variable.

Using an example.

Pay in £1,000,000 for one day and then withdraw it the next.

Average balance for the month is over £20,000 but you won't get £20,000 x 3% / 12 = £50 gross

You get 20,000 x 3% x 1 / 31 x 1 / 12 = £1.61 gross

Cardew

innovate wrote: »

I have often asked myself what the relevance of an average credit balance on a statement is, but apparently this was something people did ask for, and it might even be something banks are required by law to provide to us now.


But whatever - average credit balance is irrelevant to interest calculation.

It's a load of old tosh to say "if your balance is an average of £10,000 you will receive 3% Gross interest on the full balance" - -- not least because the full balance is a complete unknown / variable.

Firstly I had a Santander Zero current account(no currency charges for ATM withdrawals abroad) before the 123 account and 'average credit balance' was never given - even when there was interest given on that account.

As a family we have several current accounts with different banks and again 'average credit balance' is not given.

I am trying to get my head around this, but surely as long as I keep the balance above £3,000, then interest on the average balance will be the same as calculating daily interest and adding them up.

As a simple example take a 30 day month, where for 15 days the balance is exactly £10,000 and for 15 days the balance is exactly £12,000, the average balance over the 30 day month is £11,000. Thus:

£10,000 x 3% divide by 365 x 15days = £12.33

£12,000 x 3% divide by 365 x 15days = £14.79

Thus total interest is £27.12

Now take an average balance as £11,000 Thus:

£11,000 x 3% divide by 365 x 30 days is £27.12

innovate

The fact is that interest is calculated on a daily basis, against your balance at the end of each day. Then added up for each of your monthly statements (which is personal, not for calendar months, at Santander 123).

The monthly sum of the calculated daily amounts of interest might resemble an amount calculated from an average monthly balance, but it is not how Santander (and/or most/all other banks) calculate your credit interest. See the link to the general T&Cs I posted earlier.

Cardew

ffacoffipawb wrote: »

Using an example.

Pay in £1,000,000 for one day and then withdraw it the next.

Average balance for the month is over £20,000 but you won't get £20,000 x 3% / 12 = £50 gross

You get 20,000 x 3% x 1 / 31 x 1 / 12 = £1.61 gross

Thanks. Yes I understand if you exceed £20,000 the excess is not counted.

However in the example I gave for the 15 Dec statement Santander state that my average balance was £6,000.81 and the interest paid was £13.72. (and I didn't reach a figure of £20k in that month - or drop below £3k) So I cannot see how they reached that figure for interest.

Cardew

innovate wrote: »

The fact is that interest is calculated on a daily basis, against your balance at the end of each day. Then added up for each of your monthly statements (which is personal, not for calendar months, at Santander 123).

The monthly sum of the calculated daily amounts of interest might resemble an amount calculated from an average monthly balance, but it is not how Santander (and/or most/all other banks) calculate your credit interest. See the link to the general T&Cs I posted earlier.

Yes I understand what you are saying, but I cannot see how calculating daily will give a different result to the average monthly balance - see the example of 15 days at £10,000 etc