I don't see why banks don't do this with current account interest. Instead of paying you interest on credit balances and charging interest on overdrafts, separately, on the same statement, why not just take gross interest earnt off the overdraft interest and just charge you that. Or if gross interest earnt is greater than overdraft interest, just pay you the balance so that's all that gets taxed.
Since they are the same, neither do I.
Well, maybe your bank carried out the calculation in the different way as what my bank did. I was thinking in the exact same way as you guys are thinking, until one day that I checked my statement in more details against my spreadsheet and found the difference.
I hope that you won't pay more than you should as I clearly have paid more than I should. So good luck.
"My Interest" wrote
Well, the difference between your two calculations lies in the 50 (reduction in interest on mortgage due to savings) -- which produces the difference of 25p (0.005%) in the interest the following month.
How exactly did your statements look? Sounds like your savings a/c stayed at "10K" balance throughout? Your mortgage balance at the start of month#1 was "100K"?
How were the "644.30" payments shown - reducing the mortgage balance each month, with the interest payments increasing it?
How much interest was shown for month#1 - "450.00"? If so, then the balance at the end of month#1 would have been: 100K - 644.30 + 450.00 = 99,805.70 (a reduction in principal of 194.30). This would lead to interest for the following month of:
0.005% x (99,805.70 - 10K) = 449.03 (not 449.28).To get month#2 interest of 449.28 (as you state), the net balance would have had to be 89,855.70 - so the mortgage a/c balance must have been 99,855.70 (with savings a/c 10K). If this was the case, then the previous month's calculation must have been: 100K - 644.30 + 500.00 = 99,855.70. In other words, you didn't receive any offset for the savings a/c!!
So - are you saying that the bank uses 99,805.70 at start of month#2 for a "balance showing on statement", but uses 99,855.70 at start of month#2 for calculating interest?
Which bank does this?
"Andy Pandy" wrote
The number of accounts allowed to be linked is restricted to ONE only.
"Andy Pandy" wrote
Exactly.
"Andy Pandy" wrote
If that is true, then it's no wonder that people consider the benefits system unfair!!
"Alan Frame" wrote
But a CAM *is* an offset mortgage - just with only one account being "linked".
So CAMs are a *subset* of all types of offset mortgages. [Oh dear - now I'll have Troy telling me I've missed an apostrophe there!]
"Alan Frame" wrote
With an offset mortgage you could (if you desire) keep mortgage a/c (negative) balance at the maximum, savings a/c's all at zero and let the current a/c vary from day to day.
Is a positive current a/c balance (equal to "maximum mortgage loan amount" less "overall debt") any more "pretend" than a negative current a/c balance (equal to "offsetting funds" less "maximum mortgage loan amount")??
"Alan Frame" wrote
... as with other offset mortgages ...
"Alan Frame" wrote
... as with other offset mortgages[1] ...
"Alan Frame" wrote
... as with other offset mortgages ...
"Alan Frame" wrote
[1] repayment = ABS(last month's current a/c balance - this month's current a/c balance) [The mortgage a/c and savings a/c balances staying the same from month to month -- unless, of course, you *wish* to move the numbers around!]The difference is caused by whether they calculate the net balance first before get the interest or calculate interest separately first then combine it. What you see is probably just the final figure. I almost filed a complain about, but realised it was not "mis-leading" as the bank never articulated the exact way how it works. Both approaches can be reasonably interpreted as "offset".
0.25 sounds not signficant in this example. In my case, I would have ended up paying lots more than I should if I didn't realise this and kept what I was doing (keep up monthly repayment and moving additional fund to my saving pot only).
"My Interest" wrote
You are suggesting that the bank adds the savings interest on a different day to the mortgage interest being deducted? Then that wouldn't be a true "offset", would it?
Anyone who understands the benefits systems knows that it not fair!
Not exactly.
In my case, the bank calculates the interest on my outstanding mortage and my saving pot seperately. Then charge me the difference as my net interest, i.e. offset my mortgage interest with my saving interest.
In your case (or what you think) is that the bank will calculate the net balance (i.e. offset your outstanding balance with your saving) first before calculating the interest.
The difference between these two approaches is the different portion of principal to be repayed each month (as I show in my example.)
"My Interest" wrote
There is no difference between those two calculations - as long as they are done on the same day! :-
(0.005% x M) - (0.005% x S) = 0.005% x (M - S)
However, what you were suggesting before, was that the interest for month#2 on the mortgage a/c was calculated on it's balance AFTER the previous month's 500.00 "mortgage interest" had been added, but BEFORE the previous month's 50.00 "offset savings interest" had been added.
Hence month#1's interest on *mortgage* had to be applied at a different time to month#1's interest on *savings* !
"My Interest" wrote
No, the difference between your calculations is the "interest on the interest" which your bank isn't paying you. [Assuming your comments are correct.]
I tihnk we are talking about the same thing though I do not fully understand the "timing" you mentioned.
As I am talking about repayment mortgage here, each (monthly) repayment made will consist interest payment and principal payment. The principal payment is calculated by deducting the interest from the total payment. Thus by calculating the interest separately, i.e. calculating the interest on outstanding mortgage first, the bank essentially reduce the principal payment. This the reason that the first payment (i.e. month #1) makes no difference between the two approaches and all the following payments will be different (also, in fact, the difference will increase.)
"My Interest" wrote
OK - here's the "timing" - looking at the mortgage a/c statement :-
Balance @ start of month#1: = -100,000.00 [A] Plus payment made, +644.30 = -99,355.70 [B] Less interest on mortgage balance, -500.00
*** = -99,855.70 [C] *** Plus interest on savings balance, +50.00 = -99,805.70 [D]Usually, the interest in an offset arrangement isn't split into -500.00 and
+50.00; instead, it's only shown as -450.00 overall. However, the only way you would be able to see a balance of 99,855.70 in the mortgage a/c (as at [C] above), is if the mortgage interest of -500.00 is applied sometime *before* the savings interest of +50.00 (not both at the same time) - and then the balance [C] above exists for the intervening time. [You said that the mortgage interest in the following month would be 499.28 (not 499.03), hence that is calculated on a balance of 99,855.70.]
Barclays/woolwich does it entirely differently (and more logically IMHO) to that. There is no interest paid at all on any accounts that are linked to the mortgage. Not before, during, or after :-) They deduct the total amount of those linked accounts from the mortgage. Then they charge interest on that.
This also means you dont have any revenue implications. I'd have thought there was still a chance in the approach your bank uses, that the revenue could say you have received x in interest?
IMO it's *all* pretend until the aggregate balance is no longer negative, so I'm in favour of it being presented that way.
I'l leave it at that, Alan
"Alan Frame" wrote
I think that positive aggregate balances are just as "pretend" as negative - they're all just numbers on the bank's computer, after all!
And don't forget that what is "positive" to you, is actually "negative" to the bank (always one of you owes the other, whichever direction it happens to be at the time). You say that you consider it "pretend" when the (aggregate) balance is negative (to you, presumably) - and hence positive to the bank. Should the bank also consider it "pretend"?? If not, how can effectively the same situation (you owing the bank money) be *both* "pretend" and not?
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