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Savings Interest Settings

The savings interest configuration menu lets you set the parameters that will be applied during the various savings interest transactions for different savings products.

How to configure Savings Interest Settings

To make savings interest settings you go to System->Configuration->Savings-> and click on the Interest on Savings tab. A screen will appear looking as follows:

• Savings Product: Select the product from the drop-down list, e.g., "Free Savings". The product should have been entered at System->Configuration->Products.
• Interest Period: This is the period over which Loan Performer will calculate the savings interest, e.g., "12".. Enter the interest period in months (from 1 to 12). You will be able to calculate and book interest to the savings accounts only at the end of the period.
• Calculate on: Enter here the end date of your first interest period, e.g., "31/12/2012". If you start the calculation of interest on the 1^st January 2012 and the interest period is set to 12 months, then the date to be entered here should be 31^st December 2012.

Please note that this date will be updated automatically with the first interest calculation and it will not be possible to modify it afterwards.

• Interest Rate...% per year: This is the rate at which Loan Performer will calculate the savings interest in a given period. Enter here the interest rate (as an annual percentage), e.g., "20%".
• Withholding Tax on Interest Paid: This is a percentage of interest paid on savings that is deducted and retained as government withholding tax at the time of interest payment. In this field indicate the percentage of withholding tax applicable in your country, e.g., "8%".
• Minimum Balances: These are the minimum amounts that should be maintained on the client's savings account at all times as long as the account is open. The minimum balances can be set separately for Individual, Joint, Business and Group accounts.

At entry of savings Savings Withdrawal, Loan Performer will not allow you to withdraw amounts below the minimum balance unless the Overdraft Protection? option has been de-activated at the menu System->Configuration->Savings->Savings Accounts Settings.

• Minimum Interest Balance: These are the minimum amounts of savings that generate interest. Accounts with balances below the minimum amount do not receive any interest. Normally the "Minimum Interest Balances" are the same as "Minimum balances". If interest on savings is not calculated, leave these amounts at 0.
• Minimum interest amount: Indicate here the minimum interest amount which should be added to the clients savings accounts, e.g., "30,000". Any amount below the one that is indicated here, will not be added.
• Interest Rate for negative balances...% per year: This option is only applicable if you allow overdrafts and charge interest on the overdrawn accounts. The interest rate for negative balances is also set as an annual percentage, e.g., "5%".

• Interest to be calculated on Dormant Accounts: If this option is checked, the interest will be calculated on the dormant savings accounts as well.
• No interest if withdrawals in period: This option is used when you pay monthly interest on client's savings only on conditions there are no withdrawals in a month. If that is the case, click on the check-box to activate the option.
• Minimum interest amount charged on negative savings amounts: Indicate here the minimum interest amount which should be charged on the clients savings accounts for negative balances. It is the amount that will be charged to the client's savings account for any amount below the one that is indicated here.
• Number of interest days in a year:
• Number of weeks in a year:

Note that Loan Performer supports six different methods that will be used in calculation of interest on savings as shown below:

1) Interest on savings calculated on Daily Running balances: In this case the interest is calculated as follows:

SUM(End of the day balance x No. of days since the last transaction/No. of interest days per year) x Annual Interest Rate

For example, if the following balances were on the client's account in the month of January 2012:

01/01/2012   -  14/01/2012:           300,000 (deposit of 300,000 made on 01//01/2012)

15/01/2012  -  19/01/2012:           200,000 (withdrawal of 100,000 made on 15/01/2012)

20/01/2012 -  31/01/2012:           100,000 (withdrawal of 100,000 made on 20/01/2012)

The Annual Interest Rate is 10% and the number of interest days in a year is 365 then the interest on the client's savings for the month of January would be:

{(300,000 x 14/365) + (200,000 x 5/365) + (100,000 x 12/365)} x 10% = 1753.42

2) Interest on savings calculated on Monthly Minimum balance:In this case the interest is calculated as follows:

(Monthly Minimum balance x Annual Interest Rate)/Number of months in a year

Please note that if the interest on savings is calculated on monthly minimum balances the interest for the month in which the client made his/her first deposit will be "zero" (since the minimum balance of the client's account for that month is "zero").

Therefore for the above example, if the first deposit was made on 01/01/2012, the interest on the client's savings for the month of January would be:

(0 x 10/100)/12 = 0

If in the above example we will change the first deposit date to be 31/12/2011, hence the 300,000 will be the balance carried forward from the month of December, then the Interest on the Minimum Balances for January will be:

(100,000 x 10/100)/12 = 833.33

3) Interest on savings calculated on Average Monthly balance: In this case the interest is calculated as follows:

(((Balance at the Start of the Month + Balance at the End of the Month)/ 2) x Annual Interest Rate)/Number of Months in a Year)

Please note that if the Balance at the Start of the period for the above example will be equal to 0 (the first deposit is made on the 1^st day of the period, therefore the starting balance is 0).

Therefore for the above example, if the first deposit was made on 01/01/2012, the interest on the client's savings for the month of January would be:

(((0+100,000)/ 2 x 10%)/12) = 416,62

4) Interest on savings calculated on End-of-period balance:In this case the interest is calculated as follows:

((End of period balance x Annual Interest Rate / 100)/Number of month in a year) x Number of month in the period

Therefore for the above example, the interest on the client's savings for the month of January would be:

((100,000 x 10%)/12) x 1 = 833.33

5) Interest on savings calculated on End-of-month balance: In this case the interest is calculated as follows:

(Balance at the end of the month x Annual Interest Rate)/12

Therefore for the above example, the interest on the client's savings for the month of January would be:

(100,000 x 10%)/12 = 833.33

6) Interest on savings calculated on Running balances compounded: In this case the interest is calculated as follows:

Running balance x (No. of days since the last transaction/No. of interest days per year ) x Annual Interest Rate / 100

For example, if the following balances were on the client's account in the month of January :

01/01/2012   -  14/01/2012:           300,000 (deposit of 300,000 made on 01//01/2012)

15/01/2012  -  19/01/2012:           200,000 (withdrawal of 100,000 made on 15/01/2012)

20/01/2012 -  31/01/2012:           100,000 (withdrawal of 100,000 made on 20/01/2012)

The annual Interest Rate is 10% and the number of interest days in a year is 365 then the interest on the client's savings for the month of January would be:

(300,000 x 14/365 x 10%) = 1150.685. This is added to the principal (300,000 + 1150.685) hence the new running balance is 301,150.685

When a withdrawal of 100,000 is made the running balance on 15/01/2012 is 201,150.685

Interest is calculated as (201,150.685 x 5/365 x 10%) = 275.55 . The new running balance is 201,426.235

When another withdrawal is made on 20/01/2012. The balance was 101,426.235. Interest is calculated on 101,426.235 as:

(101,426.325 x 12/365 x 10/100) = 333.46

The running balance inclusive of interest at the end of January is 101759.785

Please note that a savings balance carries interest from the day it's balance changes until the day prior to it's balance changing again.

Click on the Save button to save the parameters. You can click on the Print button to view/print these parameters and keep them for future reference.

Click on the Close button to exit.

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