finPOWER Connect - Deposit Interest Guide

This blog covers Deposit Interest - both the Interest and corresponding Payout transaction if applicable.

Fixed Term Deposits

Typically, there are no Withdrawal or Additional Investments allowed for Fixed Term Deposits.   This means the only Transactions during the Term of the Investment are:

• Interest Transactions
• Interest Payout Transactions
  

Therefore, it is safe to process Transactions in advance of today.

• Account Processes for Interest Transactions, including Interest Payouts, can be done on Friday for the weekend.
• Interest Payments for the weekend could be sent to the Bank for payment on Friday -
• Friday, Saturday and Sunday's Interest is processed on the Friday.
• The Interest Payout transactions are dated on the Friday, Saturday, or Sunday (as normal).
• The Bank Transactions are exported and dated Friday.

On Call Deposits

There may be Withdrawals or Additional Investments on any day.  Therefore, until all the transactions have been processed for the day, including importing Bank Transactions from the day before, Account Processes, including Interest should not be processed.

• This is why Run Account Processes defaults the previous day for Interest Transactions and Statements.

Interest Transactions (Credit Interest and Payout)

The Interest Transaction is dated and treated as at the end of the day, i.e., overnight.

• It will show after other transactions for the day.

The Payout Transaction may be dated the same as the Interest Transaction.

• If dated the same day as the Interest Transaction:
• It is treated as at the end of the day, i.e., overnight.
• It will show after other transactions for the day.
• The "Schedule Type" is "Interest Payout".
• Otherwise, it may be moved forward and therefore:
• It is treated as occurred during the day, i.e., it affects the Balance on the date of the Transaction.
• The "Schedule Type" is "Interest Paid Out" or "Transaction" (see Process Interest Payouts later).

That means if dated 31/03/2021:

• Interest calculated includes the day 31/03/2021.
• The balance that interest is calculated on 31/03/2021 does not include:
• The Interest Transaction itself.
• The Interest Payout Transaction (if dated on the same day).

Compounded Interest

There is no payment so no issues around when the investor will receive funds in their Bank Account.

Paid via Cheque or Direct Credit

finPOWER Connect does not allow the dating of Interest Payouts prior to the current date. 

This is because you can only create a Payment via the Banking System for today and the future.

Fixed-Term Deposits

Could be processed early and paid early if the Finance Company wishes.  Refer to "Paying Early" below.

On-Call Deposits

Cannot be processed early as transactions may still be processed throughout the day.  Therefore, Tuesday's Interest would be processed on Wednesday.

• However, you are unable to payout Interest to the Investor via the Banking System for a previous day.
• The Payment should be made on the Wednesday to the Investor.

What happens to the Interest Payout if the Interest Transaction is processed prior to today?

• The Interest Payout will be rolled forward to the next Banking Day.
• If this is on or after today it will be processed - the Interest Payout will have a Schedule Type of "Interest Paid Out" and its effective date will be the date of the Transaction, i.e., not overnight.
• Otherwise, it will not be processed and effectively compounds the Interest.
• You may run the Process Interest Payouts wizard to payout outstanding Interest.

Moving Payments from a non-Banking Day forward to a Banking Day -

• If Interest is dated on a non-Banking Day, there is a setting on the Deposit Account Type to:
• "Roll Interest Payout Date forward if it falls on a non-Banking Day?".
• This means, for example, if the Interest Transaction is posted on a Saturday the Interest Payment will automatically be moved and paid on the Monday.

Transfers

Transfers move the Interest credited to the Deposit Account to another Account within finPOWER Connect.

There is no "Payment" via the Banking System, so there is no restriction with regards Banking.

• A Transfer can occur on any day of the week.

Note, the Transfer is dated the day after the Interest Transaction.

• This is because the Interest Transaction is not part of the balance on that day.

finPOWER Connect restricts the date of Transfers.

• Transfers can be processed on the next Banking Day with a grace period of a further two Banking Days.

NB: the two Banking Day grace period is a hard rule that cannot currently be configured.

• That means if Interest if credited on Friday and due to be transferred on Saturday, finPOWER Connect will allow you to process that up until the next Wednesday.
• The next Banking Day is Monday and allowing 2 grace days is Wednesday.
• If Interest is credited on Tuesday and transferred on Wednesday, you have until Friday to process it.
• If the Transfer is not made, the Interest is effectively compounded until the next Interest cycle.

For example:

• Friday - process Interest to Thursday -
• Thursday's Interest credited and transferred on Friday.
• Saturday, Sunday – closed
• Monday - process Interest to Sunday -
• Friday's Interest credited and transferred on Saturday.
• Saturday 's Interest credited and transferred on Sunday.
• Sunday's Interest credited and transferred on Monday.
• Tuesday - process Interest to Monday -
• Monday's Interest credited and transferred on Tuesday.

Capitalised Interest

Moves the Interest value to Principal - this depends on the Element defined on the Account Type.

There is no "Payment" via the Banking System, and it is not transferred to another Account; so, there are no date restrictions.

NB: The Capitalisation Transaction is dated the day after the Interest Transaction - this is because the Interest Transaction is not part of the balance on the day Interest is credited to the Account.

Process Interest Payouts

Where a Payout or Transfer cannot be made because it is dated prior to that allowed the Process Interest Payouts wizard allows you to make these payments.

The "Schedule Type" of an Interest Payment created via the Process Interest Payouts wizard is "Transaction".

This means:

• It affects the Balance on the date of the Transaction.
• It is not shown at the end of Transactions for the day.

Paying Early

For Fixed-Term Investments you might consider paying Interest early.  Even at a high Interest Rate, if Interest is paid early, the compounding effect may not be a significant cost.

For example: 

• With an Interest Rate of 10%, paying Interest early by one day is the equivalent of 10% or 10% for one day.
• E.g., Interest on $100,000 @ 10% paid Monthly = $100,000 x 10% / 12 = $833.33. Interest for one day is $833.33 x 10% / 365 = $0.23.
• E.g., Interest on $100,000 @ 10% paid Quarterly = $100,000 x 10% / 4 = $2,500.00. Interest for one day is $2,500.00 x 10% / 365 = $0.68.

Of course, over the entire Investment portfolio this could mount up – if all Interest is paid out rather than compounded. 

If you are considering paying Interest early, then you should factor this into the Interest Rate you will pay.