Metro Bank Misleading Customers ( maybe breaching advertising standards )

groovyclam

So, help with numbers, sums and calculations on this Metro Account.

This much discussed Metro Bank Fixed rate account  I have chosen the options of pay interest away monthly with the reported rates of 5.76 gross and 5.91 AER. In the flyer it says it calculates interest daily and "Gross rate is an annual contractual rate and paid out at a rate applicable to to product" ( applicable to my product is "monthly" out into a separate account ).

So... is this following method correct for my first full month of interest calculation:( i.e. ignore we are part way through November ) for an assumed £10,0000 initial deposit on 1st December:

1. Divide gross rate by 365 to get daily interest rate = ( 0.0576 / 365 ) = 0.0001579

2. Multiply invested sum in the account ( £10,0000 ) by the number of days in the month ( 31 ) and multiply by daily interest rate ( 0.0001579 ) = £48.95 ( rounded )

3. My invested sum will never accrue above £10,000 because the interest is paid elsewhere for me to do with as I see fit.

4. The £48.95 interest is put in my nominated "accrue the interest" account and we all start again - any month of 31 days would generate £48.95 interest, any month of 30 days it would be £47.37 and February I would get £45.79 ?

Have I got that right ( but maybe with some minor tweak wrong with February because it has a leap day ) ?

BooJewels

It might vary a smidge depending on exactly how they calculate and pay - they're all similar, but I have some fixes that pay on the expected date even if it's a weekend or Bank Holiday - others might pay on the Monday after a weekend, but pay 33 days interest.  Not all fixes pay the extra day for February in leap years.  You need to check your T&C for the details.

My calculation is a bit simpler - 10,000 x 0.0576 / 365 x 31 = £48.92 and £47.34 for a 30 days month.  I find that works out within a penny of what I get for my own accounts - I just put the interest rate and balance into a 'calculation' spreadsheet and have 2 rows, one for 30 days and one for 31 days - I can then use this for my monthly budgetary projections.

cloud_dog

BooJewels said:

It might vary a smidge depending on exactly how they calculate and pay - they're all similar, but I have some fixes that pay on the expected date even if it's a weekend or Bank Holiday - others might pay on the Monday after a weekend, but pay 33 days interest.  Not all fixes pay the extra day for February in leap years.  You need to check your T&C for the details.

I very much doubt financial organisations pay an extra days interest in a leap year, as the gross / AER is a calculation for a year, however that is made up e.g. 365 or 366 days.  So if an account had a static balance of £10k and accrues 5% AER interest daily in a 365 day year, it would accrue 0.0136986% per day.  In a leap year the daily accrual percentage would be 0.0136612%.

BooJewels

cloud_dog said:

BooJewels said:

It might vary a smidge depending on exactly how they calculate and pay - they're all similar, but I have some fixes that pay on the expected date even if it's a weekend or Bank Holiday - others might pay on the Monday after a weekend, but pay 33 days interest.  Not all fixes pay the extra day for February in leap years.  You need to check your T&C for the details.

I very much doubt financial organisations pay an extra days interest in a leap year, as the gross / AER is a calculation for a year, however that is made up e.g. 365 or 366 days.  So if an account had a static balance of £10k and accrues 5% AER interest daily in a 365 day year, it would accrue 0.0136986% per day.  In a leap year the daily accrual percentage would be 0.0136612%.

I think you're probably correct - I've recently opened a new Ford fix and know there was something in the T&C about payments on 29th February - and I got muddled. Checking it, it states that if the payent date is 29th, they'll pay on 28th February, unless it is actually a leap year.  I've not had savings in a leap year yet, so not experienced it first hand yet.

groovyclam

As long as you think I'm on the right path for the calculation I'm happy - issues about leap days or about paying or not paying on a non-working day I don't mind so much - I'm at their small print mercy on that.

For when an account is opened just BEFORE a leap year ( like mine just now this November ) I assume they calculate daily interest by dividing the GROSS rate by 365. Then, when January starts, they recalculate it as GROSS divided by 366 ? 

AmityNeon

groovyclam said:

As long as you think I'm on the right path for the calculation I'm happy - issues about leap days or about paying or not paying on a non-working day I don't mind so much - I'm at their small print mercy on that.

For when an account is opened just BEFORE a leap year ( like mine just now this November ) I assume they calculate daily interest by dividing the GROSS rate by 365. Then, when January starts, they recalculate it as GROSS divided by 366 ? 

It depends. Banks have different implementations and aren't required to detail specifically how they handle leap years, but it's simple to calculate once you receive an interest payment in the relevant period, or the institution provides accurate projections. Atom for example does pay an extra day of interest if the fixed term includes February 29th, 366 days of (1/365) interest (as detailed earlier in the thread), so the gross annual interest actually exceeds the AER.

For calculations, rounding only takes place at the very last step when calculating the interest payment. Daily accruals are not rounded.

groovyclam

AmityNeon said:

For calculations, rounding only takes place at the very last step when calculating the interest payment. Daily accruals are not rounded.

 I guess the calculations must be rounded to some length of decimal places though and then rounded to the penny when making the interest payment.

masonic

groovyclam said:

AmityNeon said:

For calculations, rounding only takes place at the very last step when calculating the interest payment. Daily accruals are not rounded.

 I guess the calculations must be rounded to some length of decimal places though and then rounded to the penny when making the interest payment.

The calculations will typically use 64-bit floating point numbers, which give about 15 digits of precision, though the calculations themselves can propagate errors in the least significant digit or two. That's a first world problem for billionaires.

AmityNeon

groovyclam said:

AmityNeon said:

For calculations, rounding only takes place at the very last step when calculating the interest payment. Daily accruals are not rounded.

 I guess the calculations must be rounded to some length of decimal places though and then rounded to the penny when making the interest payment.

The numbers aren't stored with an infinite level of precision due to system and architectural limitations, and calculations involving floating-point arithmetic can introduce rounding errors. In terms of rounding implemented as a deliberate function called in the programming logic with a specifying number of decimal places to calculate interest, it would be reserved for rounding to the nearest penny.

Some providers have their own quirks, like Zopa who calculate interest to 8 decimal places and truncate to 2 decimal places. (They also do so inconsistently which sometimes leads to account balances increasing by 1p more than the specified interest payment, e.g. "£0.00" of interest is displayed but the account balance still increases by 1p.)