Conference 7.286::dcu

I don't remember interest being compounded daily. But if that
were the case then:

	Assuming a 5% nominal rate
	   - compounded daily has an effective rate of 5.1267%,
	   - monthly is 5.1162 for a 

	difference of 0.01057% a year.  

On $10 million deposit, that's about $1,056 the DCU would be "saving"
on compounding daily vs monthly.

Gim

    
    The other question is what balance during the month do they use to
    figure the dividend?  Could it be the lowest?
    
    Also, closing of accounts before the month end will probably forfiet
    all interest for the month.
    
    Maybe the next meeting with Mr. Cockburn, we could ask him how money
    this change will generate for DCU.
    
    Sublte changes people, but they are all doing the same thing.  Taking
    money from your pocket and putting it in DCU's pocket.

    At the LKG meeting Chuck brought up the fact that they intended to
    compound monthly rather than daily. He made no bones about the fact
    that this was going to be done because most other institutions compound
    monthly and consequently be compounding daily DCUs interest rates would
    look less than they really were. I made the point to him that when this
    communicated to the DCU owners that he make it clear that this was the
    reason and that it wasn't a hidden way to deceive the membership again
    like they did with the black brochure. He told one of his assistants to
    write down that suggestion from me. I guess it was too late to
    implement it. As pointed out in the monthly statement there is no
    mention that compounding monthly very slightly decreases the yield.
    
    Re .-1
    
    I sincerely hope that the compounding is based on the AVERAGE of the
    balance during the month. If you think about it it can;t be based on
    the ending amount because everybody would go get a loan for $100,000+
    right at the end of each month deposit it and draw it out a few days
    later to repay the loan. I sincerely hope that it is not based on the
    minimum during the month.
    
    I wonder how much it'll cost to ask the communications department to
    answer this question... Note that this was not covered in the montly
    statement. Yet another example of the DCU making policy changes and not
    FULLY communicating the implications and implementation mechanisms of
    the changes.
    
    Dave

>    At the LKG meeting Chuck brought up the fact that they intended to
>    compound monthly rather than daily. He made no bones about the fact
>    that this was going to be done because most other institutions compound
>    monthly...

	My experience in recent years is that banking institutions compound
daily -- my local bank in New Jersey has been compounding on a daily basis for
at least the last ten years.  Unlike DCU, most banks also credit interest on a
monthly basis, not quarterly.  This gives DCU the ability to recoup up to an
additional two month's interest on an account that closes more than one month
into the quarter.

>    I sincerely hope that the compounding is based on the AVERAGE of the
>    balance during the month. If you think about it it can;t be based on
>    the ending amount because everybody would go get a loan for $100,000+
>    right at the end of each month deposit it and draw it out a few days
>    later to repay the loan. I sincerely hope that it is not based on the
>    minimum during the month.
    
	More than likely it is based on the average daily balance -- there was
no notice of change of basis in the last statement.  However, to the extent that
your balance falls below $1000 on any day of the month, the interest earned in
that month will now be based on your minimum balance, i.e., zero interest.

/Ed

re .4:

Do you know for a fact that earned but uncredited interest gets lost when
you close an account, or are you speculating?  You seem to be speculating
regarding the balance falling below $1000.  The only change I've seen
mentioned is how often compunding occurs.  That doesn't mean that it's
not calculated on a daily basis.

>Do you know for a fact that earned but uncredited interest gets lost when
>you close an account, or are you speculating?

	This has always been the case.  That's why many of those who were
contemplating withdrawal of funds from DCU Checking decided to wait until the
close of the September quarter.  (I think you'll also find notes in this file
attesting to DCU having told members this would happen if they withdrew funds.)

>                                               You seem to be speculating
>regarding the balance falling below $1000.

	No speculation here.  This has always been the case, although the
minimum balance used to be lower some years ago.

>                                            The only change I've seen
>mentioned is how often compunding occurs.  That doesn't mean that it's
>not calculated on a daily basis.

	The change that was described on the sheet enclosed with the last
monthly statement said that compounding would occur monthly -- it used to be
daily.  That's what compounding means, i.e., the interest is calculated and 
added to principal, the total used to calculate interest at the end of each
compounding period, in our case (now), monthly.  The total interest is only
credited to our accounts, however, on a quarterly basis.  Quarterly crediting
of interest on DCU checking has also been the case since the beginning.  I've
often wondered why DCU didn't credit interest monthly, as most banks do.
Perhaps the reason is that DCU will, on average, recoup larger interest default
amounts when accounts are closed.  At minimum, DCU has use of the uncredited
interest over a longer period.  Is that speculation?  Maybe, maybe not.

/Ed

    
    Wouldn't it be nice if DCU would spell all this out when they make
    changes like this?  Just so we don't have to speculate, guess and then
    "inundate them" with phone calls to find out what they are doing and
    what it means to us.  Are we asking for too much?
    
    Seems to be the same old story, just a different topic almost every
    month.

re .6:

I don't see how frequency of compounding has any connection with minimum
balance.  With daily compounding, interest is calculated based on each
day's balance, and then (virtually) added into the balance.  With monthly
compounding, it's calculated the same way, but not virtually added into
the balance.  In either case, you get interest for the days that your
balance is $1000 or more, and none for the days when it's less.  Unless
you balance in $999 and change, you get interest for the same days, but
you get slightly less with monthly compounding.  If DCU changed the rules
so that you got no interest for the entire month if your balance fell below
$1000 for one day, they'd be in big trouble if they didn't tell you in
advance.

>balance.  With daily compounding, interest is calculated based on each
>day's balance, and then (virtually) added into the balance.

	Correct.

>                                                             With monthly
>compounding, it's calculated the same way, but not virtually added into
>the balance.

	Incorrect on both counts.  It *is* calculated the same way, but only
once per month, with the virtual addition occuring at month-end.  Interest is
actually credited to your account only once per quarter.

/Ed

I think you're missing my point.  In both cases, the actual calculation
takes place only when the interest is credited -- in DCU's case, at the
end of each quarter.  For daily compounding, the virtual balance at the
end of each day -- the amount on which interest is earned -- includes the
interest earned on all previous days of the quarter.  For monthly compounding,
the interest earned each day is placed in a virtual non-interest-bearing
account until the end of the month, when it's added to the virtual balance
of the interest-bearing account.  In either case, the daily balance only
effects the interest earned for that day -- if it falls below $1000 for
one day out the 90-odd in a quarter, you don't earn interest for that day,
but you earn interest for the rest.  I take back what I said about there
being a difference if you kept $999 and change in your account -- the
daily balance probably doesn't include interest that's been earned but
not credited.  That means that the only effect of going from daily to
monthly compounding is a slight reduction in the effective interest rate.

Of course, DCU may be doing this totally wrong, in which case you're right.