## Monday, July 13, 2009

### Tiered interest rate

Several banks have offered tiered interest rate on savings accounts. A different interest rate is applied to different tranches of savings. This type of complicated structures bring two issues:
a) does the bank state clearly how the interest is to be computed?
b) is the customer able to check that the correct amount of interest has been credited?
In a savings account, the balance can fluctuate every day. Does the bank apply the tiered interest calculation on the daily balance?
Will the bank be willing to show each customer how the interest credited in each month is calcuated?
I hope that bank customers are given the correct amount of interest and are not short changed, due to their inability to check on the calculation of the interest.

Anonymous said...

Hi Mr Tan,
This interest rate matter is also quite complicated.

I just use 2 banks as example:
(1) OCBC
Amount Rate (% p.a.)
First \$10000 0.1250
From \$10001 to \$50000 0.1750
From \$50001 to \$250000 0.3250
Above \$250000 0.4000
If one has \$75000, how is the interest calculated?
(2) UOB
First S\$3,000 0.1250
Next S\$47,000 0.1750
Next S\$50,000 0.3250
Similarly, if one has \$75000, how is the interest calculated?

How to compare which bank (3 local banks, Maybank, Citibank, HSBC, RHB, just to name a few) gives the highest interest rate or simply the same as it is just a twist on the numbers?

starlight

Anonymous said...

They will tier it such that maybe only 10 to 20% of a big amount (to qualify) will receive higher interest rate. And they will publicise big and bold this high interest rate. The lower rate details are found only maybe in a small table or in small print. Many are misled. They thought their whole big amount got this rate!

Loh Hon Chun said...

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Anonymous said...

I don't have any problem understanding the mathematics for the calulations. I learned it in Primary 6, in the good old days (The textbook is called General Mathematics by CV Durell i think. Volume 6, blue color, and Volume 5 was orange color cover).

It's exactly the same style as how income tax is calculated. It was part of the Vol. 6 text book material, we did such sums in PSLE back in the good old days.

If everyone is paying income tax and could understand the calculations, there should be no problem with this kind of tiering approach.

It is a non-issue in my opinion. The real issue is whether the interest rate can go back higher sooner.

REX

Anonymous said...

Amount Rate (% p.a.)
First \$10000 0.1250
From \$10001 to \$50000 0.1750
From \$50001 to \$250000 0.3250
Above \$250000 0.4000

For \$75,000
The First 10000 earn \$12.50pa
Your next 40000 earn \$70 pa
your next 25000 earn \$81.25 pa

So with 75000 your yearly interest is \$163.75

it is not 75000 x 0.3250% as some may presume...