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A ‘leaping’ interest calculation

The complaint

Rita had a term deposit with a credit union, Union Credit Limited. The deposit was invested for 2 years from 29 November 2011. Rita complained that Union Credit incorrectly calculated interest on the term deposit by $13.25.


The discrepancies

We reviewed the account. The first discrepancy was that Rita had calculated interest based on a 366 day year for part of the term. Union Credit had calculated interest on a 365 day year for the whole of the term.


The second discrepancy was about Rita’s resident withholding tax (“RWT”) rate. Rita said she instructed Union Credit to apply her new RWT rate at 30% from the end of February 2013. However, Union Credit had applied Rita’s RWT rate at 30% from the end of November 2012.


The third discrepancy was that as a result of 2013 not being a leap year, (whereas 2012 was) Union Credit had to begin the 6th quarter of the term on 28 February 2013. Each quarter then ended on the 27th day of the applicable quarterly month. Union Credit then calculated a day’s interest for the last day of the term which was 28 November 2013.


However, Rita had calculated each quarter through to the 28th of each applicable month, meaning there was no requirement to calculate interest for one day on 28 November 2013.


FSCL’s review


365 day year

We considered Union Credit was correct to calculate interest on a 365 day year as this was its standard process. We also noted that this is standard banking process.



In relation to the RWT discrepancy, Union Credit gave us a file note signed by Rita and dated 7 November 2012, about a change in her RWT from 10.5% to 30%. Rita could not prove that she instructed Union Credit to change her RWT effective from the end of February 2013. We therefore preferred Union Credit’s written evidence.


We were also of the view that Union Credit was correct to apply the new RWT rate effective from when the interest was ‘paid’ or ‘applied’ to the account, which was the end of the quarter following the instruction, being 28 November 2012.


In any event, Rita said that her accountant was going to be able to reconcile the RWT discrepancy when he did her next tax return. We found that Rita had not suffered any financial loss in this regard.


Date change

Finally, we calculated whether Rita was disadvantaged by Union Credit changing the end date of each quarter. We found that the way the Union Credit had calculated the interest based on when quarters ended and started, advantaged Rita by 1 cent more than if it had calculated the interest the way Rita had.


We suggested to Rita that she withdraw her complaint.


Rita had reinvested her money after the end of the term in November 2013, and now wanted to withdraw the funds early and cut all ties with Union Credit. We spoke with Union Credit which agreed it would not charge Rita a break fee and would give her the benefit of interest at 4.5%, even though she had not remained in the investment for the entire term.


Rita accepted the settlement offer and withdrew her complaint.