Timing of Interest on CDs

[Corporate ORphan]

Recently had a discussion with our credit union about a confusing situation we noticed when we compared the interest credited to some of our CDs for the individual months of January, February, March and April. We would have expected the interest credited on the March statement to be greater than that credited on the February statement. We expected the March interest to have been calculated based on a higher balance than the Feb (our credit union calculates interest and credits to the CDs on a monthly basis). Plus, March has more days than Feb (we were uncertain whether they computed the interest on a daily or monthly basis, but this couldn't have been the reason anyway, since March has 31 days and Feb only 28).

They took about a week to research our question and get back to us with an answer and it surprised us. They told us that the interest credited on the Feb statement was actually the Jan interest (31 days) and that credited on the March statement was actually the Feb interest (28 days). This answer disturbed us, we would have expected the Jan interest to be credited on the EOM Jan 31 statement, the Feb interest on the EOM Feb 28 statement, the March interest on the EOM March 31 statement etc. However, we didn't say anything at that time because we were unsure of the common business practice in the Credit Union industry re this situation.

We're hoping to get some feedback from the folks on this forum regarding their experiences and what is reasonable for us to expect in this situation.

Thanks for any help or advice you offer.

 

[thefinancebuff]

They told us that the interest credited on the Feb statement was actually the Jan interest (31 days) and that credited on the March statement was actually the Feb interest (28 days). This answer disturbed us, we would have expected the Jan interest to be credited on the EOM Jan 31 statement, the Feb interest on the EOM Feb 28 statement, the March interest on the EOM March 31 statement etc. However, we didn't say anything at that time because we were unsure of the common business practice in the Credit Union industry re this situation.

What date did you open the CD? Many banks/CUs pay interest on the CDs on the same date of the month as the CD's maturity date. Suppose you opened on the 19th. Then on Feb 18th you get interest from 1/19 to 2/18, which shows up on your Feb. statement. On 3/18 you get interest from 2/19 to 3/18 (fewer days), which shows up on your March statement.

 

[pb4uski]

+1 that is the way my PenFed CDs work

 

[kaneohe]

My PenFed statement seems to have an "anniversary" date of the month determined by ......perhaps related to when the account was opened.
If you have multiple CDs, they all have interest posted on the same day each month regardless of when the CD was opened so the first and last mos. are typically not full months. Still, the statement is very clear about when the interest is posted on each CD so perhaps OP should have a chat w/ OP's CU about making the statement more transparent. Taking a week to research something like this seems a sign of non-clarity in posting info.

 

[FANOFJESUS]

Delete post. I don't know for sure.

 

[Corporate ORphan]

Interest on CDs

What date did you open the CD? Many banks/CUs pay interest on the CDs on the same date of the month as the CD's maturity date. Suppose you opened on the 19th. Then on Feb 18th you get interest from 1/19 to 2/18, which shows up on your Feb. statement. On 3/18 you get interest from 2/19 to 3/18 (fewer days), which shows up on your March statement.

Thanks for the reply, this sounds like a possibility. I will need to press harder for better transparency on the statements. Have heard nothing but silence since I asked them who to contact to get the statements improved (I pointed out to them that they would likely be hearing from me every month the interest amounts don't add up and it would be a waste of their time (as well as mine) and costly for them. I asked them this over a week ago and have heard nothing but silence.


Just to get this clear. Even though a statement may be dated 3/31 it will only contain interest for the periods 2/19 - 2/28 and 3/1 - 3/18? If so, how does your calculation work? Is this 2/19 -2/28 interest added to the 2/1 principle amount before calculating the 3/1 - 3/18 interest? Or, is the amount calculated based on the principle as of 2/19 and the number of days difference between 2/19 and 3/18?
We thought we might get better service (than some large, national bank) since, as I understand it, the depositors are the owners of the credit union.

Do other folks statements do a better job of pointing this out and showing how the credited interest is calculated (how many days are used) each month?

 

[Corporate ORphan]

Interest on CDs

Delete post. I don't know for sure.

Rec7,
Thanks for your reply, but not sure what you mean. Are you suggesting that my question has no value and should be deleted without any response?

Corporate Orphan

 

[FANOFJESUS]

Rec7,
Thanks for your reply, but not sure what you mean. Are you suggesting that my question has no value and should be deleted without any response?

Corporate Orphan

No LOL I thought my post should be deleted because I thought I knew the answer but was not sure.

 

[thefinancebuff]

Or, is the amount calculated based on the principle as of 2/19 and the number of days difference between 2/19 and 3/18?

Yes. The statement ending 3/31 shows activities happening in your account during the month. If your CD posts interest monthly, it can have its own monthly cycles, independent of the statement, starting on the date it was opened, ending on the date it matures. Does your statement show the date the interest was paid?

Better service, knowledgeable personnel, and better IT systems are all different things. In my experience credit unions, especially small local ones, typically have inferior IT systems because of lack of economy of scale. They just buy a system they can afford.

 

[arky]

I wouldn't worry about monthly variances. If the amount at the end of twelve months does not agree with the stated APR, then you have reason to complain.

 

[Corporate ORphan]

Yes. The statement ending 3/31 shows activities happening in your account during the month. If your CD posts interest monthly, it can have its own monthly cycles, independent of the statement, starting on the date it was opened, ending on the date it matures. Does your statement show the date the interest was paid?

Better service, knowledgeable personnel, and better IT systems are all different things. In my experience credit unions, especially small local ones, typically have inferior IT systems because of lack of economy of scale. They just buy a system they can afford.

FinanceBluff,

Nowhere on my statements does it explain that individual CDs may be on a different cycle than the monthly statements (CDs' statements are merely a line on the same EOM statement that includes checking account, savings account, money market accounts, etc.). In addition, each of the CDs is on it's own schedule, further complicating the calculation. I fear that this particular credit union may be a victim of the problem you mention (small credit unions don't have the resources to create and maintain a large, professional IT department and attempt to purchase "off the shelf" software to meet their needs (modifying their business practices to accommodate the limitations of their software)).

I've had personal discussions with their CIO and CFO in the past regarding improvements needed to the logon controls/security and have never gotten very far. One of the things I was hoping to learn from responses to this thread is "what a reasonable person might expect in these situations".

If every one else has much better experiences with their banks/credit unions I would probably scratch this institution off my list of potential investments when the CDs mature. If this experience is common I would probably keep them on my list of potentials (and decide between potentials based on rates and compounding terms).

 

[Corporate ORphan]

Thanks (again)