Banks apply 365-day interest calculation: Depositors lose, borrowers benefit

This change is to comply with Circular No. 14/2017 issued on September 29, 2017 and effective from January 1, 2018 of the State Bank regulating the method of calculating interest in deposit receiving and lending activities between credit institutions and customers.

Accordingly, for term deposits before January 1, 2018, banks will continue to calculate as before until maturity. Non-term deposits will be immediately subject to the new regulations.

From January 1, 2018, the basis for calculating interest will change to 365 days/year instead of 360 days/year as before. (Photo: IT)

Previously, most banks still calculated interest (loans and deposits) with the contractual convention of 360 days, while the actual number of days in a year was 365 or 366 days. This led to the conversion of the annual interest agreed upon in the contract to the daily interest rate, which was calculated based on the conventional number of days of 360 days, causing problems that were difficult to resolve, even prolonged complaints between customers and banks about the application of the number of days in a year to calculate, collect, and pay interest...

With this new interest calculation method, how will depositors and borrowers be affected? According to banking expert Dr. Bui Quang Tin, depositors will suffer a little loss and borrowers will have less pressure to pay interest.

For example, a depositor deposits 220 million VND, 13-month term, 8.8% interest rate/year, deposited on July 7, 2017, maturity date is August 7, 2018.

With the calculation method based on 360 days according to the formula: [actual deposit amount x interest rate (%/year) x actual number of deposit days]/360, the interest will be calculated as follows: interest = [220,000,000 VND x (365 + 31) x 0.088]/ 360 = 21,296,000 VND. With the same amount and this formula applied to 365 days, the depositor will receive actual interest of 21,004,273 VND. Thus, the actual interest will decrease by 292 thousand VND and the depositor will lose 5 days of interest calculation.

"Thus, the actual interest received is reduced by 0.13% on the deposit amount. With the above example, the actual interest received by the depositor for a 13-month term is reduced by 0.13%, meaning that if the deposit is made at an interest rate of 8.8%/year, the actual interest rate compared to before is only 8.67%, an insignificant decrease and is considered unchanged," Mr. Tin calculated.

The same amount of 220 million VND, 13-month term, 8.8% interest rate/year deposited on July 7, 2017, due August 7, 2018, but the loan is different.

Also with the formula: Interest payable for loan = [actual loan amount x interest rate (%/year) x actual number of days borrowed]/365, the borrower must pay less interest than the 360-day calculation.

“Accordingly, the loan interest will be reduced by 0.13% on the outstanding debt, meaning the loan interest rate will be reduced by about 0.13% for the above example and the borrower will benefit,” Mr. Tin informed.

Thus, with the new interest calculation method of 365 days instead of 360 days as before, depositors will receive less interest, and borrowers will have to pay less interest.