Saturday, May 05, 2007

Different methods of calculating interest

Financial institutions adopt different methods of calculating interest:

* daily balance
* lowest balance in the month
* flat rate on initial loan amount
and other ways.

They apply different methods for different products. Usually, the method is aimed at charging more interest on loans or giving less interest on savings.

This is confusing to consumers. It is also opaque (not transparent) and unfair.

I saw a computer program that offer more than 10 different methods of computing interest.

I hope that financial institutions will adopt a simple and fair method, i.e. interest on daily balance computed on 365 days.

1 comment:

The Oriental Express said...

I have always enjoyed reading your blog, Mr. Tan

Hope you enjoy my article, Life Begins at 50" which was also presented as a project speech in my Toastmasters' club.

Today I advertised under the Business Column, "If this ex-teacher and senior citizen can sell, so can you!

Cheers to becoming more venerable! When we keep busy and healthy, we keep Mr. Zlzheimer at bay!

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