Interest Calculation

Archi_Bald

schiff wrote: »

I know it's not Nationwide, but I've just tangled with this on a TSB Classic Plus account. I queried the amount of monthly interest just credited on the account, which is advertised as 5% AER. Only to find it's actually calculated at 4.89%.

AER can only be achieved if the interest is compounded. If you have £2,000 in the account, interest cannot be compounded.

But even if interest could get compounded, i.e. if you always had less than £2,000 in the account after interest got added, the way you calculate the interest you get every month is by using the gross rate. Which has been advertised from day 1 as 4.89%, so all is well.

If you want more detail: http://moneyfacts.co.uk/guides/savings/the-difference-between-aer-gross-rate--net-rate/

polymaff

schiff wrote: »

I know it's not Nationwide, but I've just tangled with this on a TSB Classic Plus account. I queried the amount of monthly interest just credited on the account, which is advertised as 5% AER. Only to find it's actually calculated at 4.89%.

See Archi's comment, plus ...

The advertising of these accounts is a bit misleading (as in "a bit pregnant":)) as, if the account balance is £2,000 then if you leave the interest in the account, no compounding takes place and so the AER equals the gross - i.e. 4.89%. This contradicts Martin Lewis' definition of "what you'd get over a year if you put money in the account and left it there". To get more than 4.89% you'd have to extract the interest as soon as it was paid and put it into another interest-bearing account.

This is, of course, because the balance in excess of £2,000 earns nothing but - even in accounts where this isn't the case - the banks are out to cut you up. The Halifax cheats over AER by not crediting the monthly interest to your account for up to four days, which means - surprise, surprise - you receive less than the advertised AER.

I guess that they'd claim that the AER is an indicative (good weasel-word, that) figure. I've yet to find an implementation, though, that doesn't end up with the banks winning and us lot losing.

colsten

polymaff wrote: »

I've yet to find an implementation, though, that doesn't end up with the banks winning and us lot losing.

Halifax fivers
Switching bonus tarts
Credit card stoozing

are the ones that spring to mind instantly.

polymaff

colsten wrote: »

Halifax fivers
Switching bonus tarts
Credit card stoozing

are the ones that spring to mind instantly.

As what? We're discussing the interest earned by savings accounts,

eskbanker

polymaff wrote: »

The Halifax cheats over AER by not crediting the monthly interest to your account for up to four days, which means - surprise, surprise - you receive less than the advertised AER.

I guess that they'd claim that the AER is an indicative (good weasel-word, that) figure.

Why not put it to the test? If you can prove that they're not delivering what they advertise, then surely it's an FCA/FOS/Trading Standards/ASA issue?

polymaff

eskbanker wrote: »

Why not put it to the test? If you can prove that they're not delivering what they advertise, then surely it's an FCA/FOS/Trading Standards/ASA issue?

I plan to. Mid-January a 3-year single-initial-deposit account matures and I can see from what has happened during the years that I've been clipped. Not by a lot - but I've been clipped. I anticipate that they'll claim that the advertised AER is "indicative", not contractual - but we'll see.

Before you ask, I chose to have monthly interest compounded to smooth out taxable income. Mind you, even the annual option could have been subjected to clipping.