Interest on bank charges: formula?

[t1grm]

I know a lot of people have said that you cannot accurately work out what proportion of interest charged is applicable to the actual overdraft and what is applicable to fees but I have tried to do exactly this. I have compiled a spreadsheet with the following columns for each charge I have incurred

 

Charge

Date incurred

Balance at date incurred

OD limit at date incurred

Regular interest rate at date incurred

Penalty interest rate at date incurred

 

The first 3 are easy to get but the last 3 are tricky. In fact for the last 2 I have applied a later rate to pre February 2002 transactions since my bank only lists past rates back to that date.

 

I then added the following formula columns:

 

Running balance of charges (running balance from previous line plus current charge)

Applicable rate (if account is in credit use zero, if account balance is above OD limit use penalty rate, otherwise use regular rate)

Days accrued (number of days since previous charge)

** Interest accrued (running balance from previous line x applicable rate from previous line/365 x days accrued from current line)

Interest balance (running balance of Interest accrued column)

 

The number at the end of the interest balance column is the total interest charged on the fees.

 

** This is the crucial formula here. It is working out the interest accrued on the total charges, at the interest rate applicable when the last charge was made, for the period since the last charge, up to the current charge. The reason why I broke the interest accrued down into periods between charges is that the accumulated charges would attract interest at different rates depending on the account balance at any given time.

 

From what I can see this has one limitation, and that is, if you go above or below your overdraft limit (or, heaven forbid, the account goes into credit!) in the period between two charges, the interest rate will change, whereas the above calculates the accrued interest at a fixed rate for a period between two charges.

 

However, I think this is about as accurate as you are going to get unless you are a mathematician – or a bank!

 

I’d appreciate any comments on this as to whether you think this is accurate or not. I can send a sample spreadsheet to anyone who wants to see it.

[hlk01]

I'd like to see a copy of the spreadsheet. We were just discussing this problem as we are unable to add interest in first letter due to the reasons you have given.

Thanks

[Spiceskull]

I'd also be keen to see it - I am a proponent of the pro-rata rates of interest, and did consider having a go at a spreadsheet myself. However, I have yet to do this, and I therefore select the lazy persons option - borrowing someone else's.

 

As you say, it will never be perfect without the huge resources available to the banks, but an adjusted figure that is an educated attempt at fairness would always look good to a judge.

 

You can PM me and I will send my email address to you.

[t1grm]

I've posted an example file here:

http://www.aptitude-limited.com/overdraft_example.xls

I would not recommend anyone use this to calculate interest with respect to an actual claim until it has been discussed on this forum and it is agreed that it is coming up with the right numbers.

I don't accept responsibility for anyone who uses this and then looses a claim because they made a false calculation on interest owed.

[coffindodger]

I have exactly the same problem and when I submitted my claim I included all of the interest payment for the month I attracted charges even though a proportion of it was for a agreed overdraft. My reasoning is that the onus is on the bank to work out what it was entitled to take and what was an unlawful charge (I know they won't admit that) I am going to phone Nationwide and see if they will make an offer regarding the interest element as they refunded the other unlawful charges withinin 1 week after the the first letter was sent. They have still not responded in writing, just credited my account with the full cost of the charges but not the interest.

Brian

[uklad79]

I was wondering about this. I am making a claim against the creditcard company I know that if it goes to court I can claim the 8% but what about the interest they have effectively charged me on the fees. It would be very hard to work out.

[traisi]

Im in the same boat - I've calculated out of the £2286 outstanding balance on my credit card account £1920 is made up of the charges incurred/accrued over the last 5 years (as it would appear some months - because the minimum payment was late and I was over my limit the charges were more than the payment)which probably means the remainder is interest and therefore they should wipe out my debt and probably send me a bit back - but I'm not sure of the formula to work out an apr of 19.9%

[lee6370]

I use a simple formula, which calculates the daily rate of interest the bank/credit cards would have charged me and then just multiple it by the number of days since the charge was applied.

 

However reading this thread I've realised that the the interest i'm charged is compounded, so need to make some adjustments to my spreadsheet, however if someone has a difinitive one I'd love to take a look.

[lelole]

For my credit card: I decided that since I have charges dating between sept 02 and oct 04, and since then got my act together with a direct debit, and finally paid the money off this month, I am well within my rights to ask for the charges plus 12 months compound interest for each one. I am assuming that this will be seen as reasonable by a judge as it is impossible to determine what length of time each charge was charged interest for as it is effectively lost within the balance at that point, and you cannot determine when the charge was paid in full and therefore interest no longer charged. If at any point I had paid off my balance, I would have only have asked for the number of months until that point.

 

Leah

[lee6370]

I don't think it's unreasonable for you to assume the last thing to have been cleared was the charges.

 

 

So i'd seek to recover interest from the time the charge was applied until you cleared the balance.

 

You can argue that since the charges were unlawful you paid them last.

[Robert_Brenchley]

Has anyone used the spreadsheet in anger yet, and if so, did it work? I don't know how to set one up.

[closey]

I am really interested in the spreadsheet as I cannot get an answer to how to work out interest or how the heck to go about it.

[lee6370]

The spread sheet as it is, works out interest for you at 8%, which is what you can charge once the claim goes to court.

 

If you want to work out how much interest the bank has added to the charges, so you can claim it back and include it as part of your main claim (which you should do), then all you need to do is change the formula.

 

If the bank are charging you 17.9% interest.

 

The forumla in colum "I" at the moment is "=(E4*0.00022)*H4" all you need to do is this.

 

1. work out the daily interest you are being charged (e.g. 8% = (8/365 = 0.00022))

 

so 17.9% would be (17.9/365 = 0.00049)

 

2. Replace the 0.00022 figure in the formula with your daily interest rate figure and there you have it.

 

so our new formula would look like this "(E4*0.00049)*H4"

 

If you have a basic calculator like mine then remember to divide your answer by 100

 

hope this makes sense.

 

Of course if you have been charged interest over a long period then you may want to compound it, so you need to add another formula.

[Spiceskull]

Vamp and/or I will be posting a killer argument regarding the whole issue of interest very shortly (before tomorrow evening...) - watch this space

[closey]

Looking forward to your killer arguement!

 

In the end I did the roughest calculation and thought let the bank work out if it is right or wrong. They are the banker not me. Maths is my weak point and your calcluation looked like zulu to me...but thats for posting it anyway!

[northland]

Vamp and/or I will be posting a killer argument regarding the whole issue of interest very shortly (before tomorrow evening...) - watch this space

 

 

Where will I find it

 

Northland

[meagain]

Had you asked while this thread was fresh back in April, you might have got an answer.

[t1grm]

This topic was closed on 09 March 2019.

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