Five key rules for calculating interest

Here are five straightforward rules to keep in mind when it comes to interest calculations:

Rule 1. Interest owed by the customer (known as debit interest) cannot itself generate further interest.

Rule 2. Both debit and credit interest must be calculated using the same time intervals. This rule was already in force before 1 October 2016, when the new rules became effective.

Rule 3. The interest calculation period must be no shorter than one year, and the reference date for calculation is fixed as 31 December each year. This means that debit interest can no longer be calculated quarterly, for example. However, for credit interest (earned by the customer), the contract may allow for a shorter calculation period, which would benefit the customer.

Rule 4. Debit interest must be calculated on 31 December, even if the contract was signed during the year, or at the end of the banking relationship.

Rule 5. Debit interest calculated on 31 December is not payable on that date, but rather on 1 March of the following year.