Buyer Beware on RTÉ - Bank Deposit Interest Calculation

Trotter

Just wondering did anyone see the section on the Buyer Beware programme on RTE this evening?

Its shocking to see that the banks haven't adopted the same guidelines for calculating interest as European banks since the Euro arrived. The european guideline seems to be that your interest is worked out over 360, whereas the Irish banks are taking their lead from the UK banks (not even in the euro!) and working it out on 365. I think it showed the formulas PxTxR/365x100 whereas at should be PxTxR/360x100 based on the European convention.

Main idea is that many Irish banks are using the UK system even though we have the euro, because the euro system means they'd have to pay out slightly more in interest.

Who on earth is going to put some transparency and decency into our banking system?!! If I had any money to deposit, I'd be moving it to a bank that followed the rules.. if I could find one.

Toots

There is no international standard as to how many days should be used in calculating interest. Typically a 365 day convention is used in Retail Banking in countries such as Ireland, the UK, US, Canada and*New Zealand, and the 360 day convention is used in many but not all parts of Europe.
*
Calculating interest on a 360 day basis confers a small advantage to customers*in the calculation of Deposit interest but also a small disadvantage to customers*in the calculation of Loan interest. As there are 365 days in the year, the 365 day convention is also a logical way to calculate interest.
*
When Ireland joined the Euro in 2001, all Irish Banks agreed to continue to calculate interest on a 365 days basis as this is the fairest way to calculate interest i.e. no advantage to Depositors and no*disadvantage to Borrowers. This also meant that existing deposit and loan contracts did not have to be amended from a 365 day basis to a 360 day basis.
*
Despite what was stated in the programme, using the 365 day basis does not confer a profit advantage to Irish banks, because the 365 day convention*is applied consistently to borrowers as well as depositors.

Toots

Hmmm, don't know why those little stars appeared in my last post

Trotter

Toots* wrote: »

Despite what was stated in the programme, using the 365 day basis does not confer a profit advantage to Irish banks, because the 365 day convention*is applied consistently to borrowers as well as depositors.

What about Joe Soap who puts 3k in the bank tomorrow, and has no loan?

dotsman

Trotter wrote: »

What about Joe Soap who puts 3k in the bank tomorrow, and has no loan?

What about Jane Soap who borrows 3K from the bank tomorrow and has no savings?