Simple Interest

[The Judge]

Hi

Eventually after three years HSBC on behalf of GM credit card they offered compensation in January.
I have continuously asked for a breakdown of calculations mainly for tax reasons, and this week I received
an acknowledgement. This dates back to 1994 and they say they have no records however as my calculations
for total ppi and the monthly compound interest seem to be very similar so I find this an amazing coincidence!
I am not sure about the simple interest of 8%. I ceased paying ppi in early 2005, do I calculate this interest by
adding the compound interest and ppi payments up to 2005 and then start the 8% simple interest for the remaining
10 years? I have asked HSBC these questions however they utilise an Indian call centre as a buffer and although
extremely polite their response is they will ask claims team, but nothing materialises!!


As ever any assistance would be greatly appreciated.

[stevemLS]

Re: Simple Interest

As I understand it simple interest is just that, you can't compound it on a monthly basis.

So, if it was £1000 between 1994 and 2005 you would get £80pa for 21 years (or you might need to do a bit of jiggery pokery working out what the balance was perhaps on 1st January each year, so, if £100 in 1994, you get £8, £200 in 1995 you get £24 (£16 + £8) and so on, but the essence of simple interest is that you don't get interest on interest.

I think I have just written a load of gobbledegook - that's why I should never be trusted with money!

[The Judge]

Re: Simple Interest

As I understand it simple interest is just that, you can't compound it on a monthly basis.

So, if it was £1000 between 1994 and 2005 you would get £80pa for 21 years (or you might need to do a bit of jiggery pokery working out what the balance was perhaps on 1st January each year, so, if £100 in 1994, you get £8, £200 in 1995 you get £24 (£16 + £8) and so on, but the essence of simple interest is that you don't get interest on interest.

I think I have just written a load of gobbledegook - that's why I should never be trusted with money!

Thanks for swift response . Just to clarify the interest is based upon the amount outstanding at endof each calender year
and not on the yearly ppi payments. ie in 1995 on £1000 it would be £80 x 21 then 1996 would be £1000 X20 and so on?

[stevemLS]

Re: Simple Interest

No, it is based on an increasing balance so for the years the balance was actually increasing, you do the calculation at the start of the year, then add it to the following year. Only when you get to the point where you stopped paying the PPI do you then multiply by the remaining number of years.

In your example, the interest due on the 1995 balance is already included in the 1996 calculation.