Migrated HSBC 1 year GIC to RBC only earning simple interest? | GIC discussions | Discussion forum

Please consider registering
guest

sp_LogInOut Log In sp_Registration Register

Register | Lost password?
Advanced Search

— Forum Scope —




— Match —





— Forum Options —





Minimum search word length is 3 characters - maximum search word length is 84 characters

sp_Feed Topic RSS sp_TopicIcon
Migrated HSBC 1 year GIC to RBC only earning simple interest?
May 20, 2024
3:59 pm
Hmm
Member
Members
Forum Posts: 129
Member Since:
May 21, 2016
sp_UserOfflineSmall Offline

I was reading elsewhere of a report a (new) migrated RBC member had their HSBC non-redeemable GIC for one year interest calculated using the simple interest method. The estimate they received from HSBC showed clearly it was based on compound interest, but the actual payout was based on simple interest from RBC.

I know some FIs make things confusing where if the term is 12 months or less, they calculate the interest using simple interest, if greater than 12 months, compound interest.

Can anyone share their insights?

May 20, 2024
5:38 pm
AltaRed
BC Interior
Member
Members
Forum Posts: 2966
Member Since:
October 27, 2013
sp_UserOfflineSmall Offline

I am only aware of non-redeemable GICs being compounded annually. Thus a 1 year GIC would be simple interest.

May 20, 2024
8:40 pm
Hmm
Member
Members
Forum Posts: 129
Member Since:
May 21, 2016
sp_UserOfflineSmall Offline

AltaRed said
I am only aware of non-redeemable GICs being compounded annually. Thus a 1 year GIC would be simple interest.  

Some for longer terms are. Google searching yields mixed results.

But my HSBC statement for the entire period shows $100K deposit at 4.75% with a start date and maturity date. The value at maturity (principal and interest) is $104,763.01

May 20, 2024
9:28 pm
mordko
Member
Members
Forum Posts: 874
Member Since:
April 27, 2017
sp_UserOfflineSmall Offline

Not sure what I am missing here but always assumed that for a 1 year GIC simple = compounded. Because there is nothing to compound.

Your $13 “extra” likely due to 2024 having an extra day.

May 20, 2024
10:15 pm
Hmm
Member
Members
Forum Posts: 129
Member Since:
May 21, 2016
sp_UserOfflineSmall Offline

mordko said
Not sure what I am missing here but always assumed that for a 1 year GIC simple = compounded. Because there is nothing to compound.

Your $13 “extra” likely due to 2024 having an extra day.  

I understand, but I have multiple statements showing a higher amount than simple interest of 4.75%. Is this a system error from HSBC? I don't think so.

Even if the $13 is for an extra day due to leap year (I am assuming that's where you're getting that from) RBC only paid $4750 in interest and the interest period does encompass Feb 2024.

But no, you are mistaken. According to ChatGPT, that is in FACT a compound interest calculation.

Furthermore, partially cached results of Google (and AI) indicate HSBC did in fact use compound interest for term deposits and non redeemable GICs.

Again, the 9 or so statements I have from HSBC via HSBC's portal show $104,763 as total interest and principal at maturity. RBC paid me $104,750.

Assuming HSBC did not merge with RBC, it stands to reason (regardless of what you may believe) based on the evidence (statements) that the funds were in fact earning compound interest.

Given:
- Principal (\(P\)) = $100,000
- Monthly interest rate (\(r\)) = 4.75% = 0.0475
- Number of compounding periods per year (\(n\)) = 12 (since it's compounded monthly)
- Time (\(t\)) = \(\frac{364}{365}\) (as May 17, 2023, to May 16, 2024, is 364 days out of 365 in a non-leap year)

Using the formula for compound interest:

\[ A = P \times \left(1 + \frac{r}{n}
ight)^{nt} \]

Substituting the values:

\[ A = 100,000 \times \left(1 + \frac{0.0475}{12}
ight)^{12 \times \frac{364}{365}} \]

\[ A = 100,000 \times \left(1 + \frac{0.0475}{12}
ight)^{\frac{364}{30.42}} \]

\[ A = 100,000 \times \left(1 + 0.00395833333
ight)^{11.98026316} \]

\[ A = 100,000 \times \left(1.00395833333
ight)^{11.98026316} \]

\[ A \approx 100,000 \times 1.04763011746 \]

\[ A \approx 104,763.011746 \]

So, the compound interest accumulated for the period from May 17, 2023, to May 16, 2024, with a principal of $100,000 and a monthly compounding interest rate of 4.75% is approximately $104,763.01.

May 21, 2024
12:07 am
cgouimet
Member
Members
Forum Posts: 1481
Member Since:
February 7, 2019
sp_UserOfflineSmall Offline

mordko said
Not sure what I am missing here but always assumed that for a 1 year GIC simple = compounded. Because there is nothing to compound.

Your $13 “extra” likely due to 2024 having an extra day.  

Yep ...

100000 * (1+.0475/365*366) = 104763.01

CGO
May 21, 2024
1:59 am
Moneyman2
Member
Members
Forum Posts: 36
Member Since:
August 16, 2022
sp_UserOfflineSmall Offline

Your interest should be $4750 and that's what you got. It was for 365 days, not 366. If it was 366, like one of the previous posters mentioned, you would have gotten $13 more, making it $4763. The interest is not paid monthly and does not compound. The only way it does, if it is longer than a 1 year. Let's say 2 years. Then it would be $100k x 4.75= $104,750
$104,750 x 4.75 = $109,725.63 making you $9,725.63 over the course of the 2 years. GL

May 21, 2024
4:34 am
mordko
Member
Members
Forum Posts: 874
Member Since:
April 27, 2017
sp_UserOfflineSmall Offline

But no, you are mistaken. According to ChatGPT, that is in FACT a compound interest calculation.

Furthermore, partially cached results of Google (and AI) indicate HSBC did in fact use compound interest for term deposits and non redeemable GICs.

I will type a bit slower. Compound interest for a 1 year GIC equals simple interest for a one year GIC.

ChaGPT is a program. If you put garbage in, you get garbage out.

The issue is all about a single day of interest. Its all about very basic school maths.

It looks like RBC paid your interest a day earlier than what HSBC intended. Sue them. Bye.

May 21, 2024
8:11 am
Norman1
Member
Members
Forum Posts: 6860
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Hmm said

Given:
- Principal (\(P\)) = $100,000
- Monthly interest rate (\(r\)) = 4.75% = 0.0475
- Number of compounding periods per year (\(n\)) = 12 (since it's compounded monthly)
- Time (\(t\)) = \(\frac{364}{365}\) (as May 17, 2023, to May 16, 2024, is 364 days out of 365 in a non-leap year)

No, it is not. Time = 365/365 = 1 as May 17 to May 16 next year are 365 days out of 365 days in a non-leap year.

So, the compound interest accumulated for the period from May 17, 2023, to May 16, 2024, with a principal of $100,000 and a monthly compounding interest rate of 4.75% is approximately $104,763.01.

It would actually be around

$100,000 x (1 + 0.0475/12)12 = $104,854.7881

if the 4.75% per annum were compounded monthly.

There's no sign of monthly compounding. HSBC would be shortchanging by $91.78 if there was supposed to be monthly compounding.

Monthly compounding is uncommon when the GIC is not redeemable and the rate doesn't change during the GIC's term. Just offer 4.854% per annum compounded annually instead of 4.75% compounded monthly and save 11 needless interest transactions each year.

Please write your comments in the forum.