How the Account Debit Option Works
What happens when a customer authorises the bank to debit interest directly from their account?
The customer agrees to pay the interest by allowing it to be 'merged' with the principal.
If the account has sufficient funds (i.e. a positive balance equal to or greater than the interest owed), the interest is paid by offsetting it against the available balance. This reduces the balance by the amount of interest due or brings it to zero.
If the account has a negative balance, then from 1 March, the interest is added to the principal (it becomes part of the principal) and begins to generate further interest. This means the total debt increases.
Authorisation for account debit must be given in writing or through a digital method equivalent to written consent. It can be provided either when the contract is signed or at a later stage.
The customer must give clear and specific consent to the debit. This authorisation can be revoked at any time, as long as it is done before the individual debit is processed.
Important!
The account debit option can be useful if the customer has no other way to pay the interest, as it helps avoid the consequences of missed payments. It also ensures that interest is paid automatically and on time, without requiring any action from the customer.
However, if the account is overdrawn, this mechanism means that the interest is added to the principal and starts generating compound interest.
The customer is free to authorise or not authorise the account debit. Choosing not to authorise it does not affect the continuation of the banking relationship. However, the customer must ensure that interest is paid by other means (e.g. cash or a bank transfer) to avoid being in default.
Even if authorisation has been given, the customer can revoke it at any time, provided this is done before the debit is processed.
Under general banking transparency rules, individual contracts may include exceptions to these provisions only if they are more favourable to the customer.
As for credit interest (interest earned by the customer), the contract may state that it is automatically credited to the account, allowing it to be capitalised and generate further interest - to the customer's benefit.
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