|
Last edited:
-
Join the MyBroadband community
South Africa’s biggest forum. Discuss, discover, and connect with thousands of members.
-
Question of the Day: Are you keeping your Prime subscription?
FedGroup's 11.3% - Do you smell BS?
- Thread starter fire2029
- Start date
zerocool2009
Honorary Master
Its the same af african bank at 13.33% -> actually 10.25%
Agree. "At least", AfricanBank does not say that their rate is 'effective' & shows other rates (including effective rate) on their website. But agreed still misleading, but not to the extent of FedGroup
zerocool2009
Honorary Master
I must say, I had a 2 week fight with African Bank guys. If you use their website (calculator), its basic interest sums (not compounded).
Such a story to get someone to confirm is it effected or nominal rates posted online.
Such a story to get someone to confirm is it effected or nominal rates posted online.
Yeah their 13.3% is also a simple interest rate & the type of rates they show are also massively misleading!!!!
Here is one way of getting to the effective annual rate ->
For their five year deposit-
- On R100 000 you earn R66 665 if held until maturity.
- Effective Annual Rate = ( 1 + 66 665 / 100 000 ) ^ ( 1/ 5) -1 = 10.76%
[infographic from africanbank.co.za ]
But man - they do make it hard for a consumer to understand their rates!!! All banks should simply quote effective annual rates!!! This make it easiest to compare apples with apples!!!
Since banks are unwilling to do this & continue misleading customers, I decided to make all my research into their rates public and ONLY quote effective annual rates. This allows a consumer not to read through fine-print and do some complex calcs.
See my other MyBroadband thread here, where I shared a free PDF November report (I will continue doing this on a monthly basis) and start public outcries until they no longer mislead customers!
Attachments
zerocool2009
Honorary Master
I asked the backend team, let's make it easy. Take R100 a month, work out for 1 year and show me.
It's actually compounded, and I showed them their online calculator isnt
It's actually compounded, and I showed them their online calculator isnt
zerocool2009
Honorary Master
I wish the interest rates should go up to 15% + again (then savings accounts would be more attractive).
It's less of a cost of funds strategy and more of a regulatory requirement strategy. As a bank you are forced to have a "Net Stable Funding Ratio (NSFR)" above a certain threshold. Retail funding (i.e. retail deposits) contribute relatively more to your NSFR than wholesale funding. Especially fixed term deposits. And since there is a very low structural savings rate in South Africa there is quite a lot of competition between the banks to get retail deposits in order to comply with the regulation.
As a side note, banks can generally borrow from the SARB at the Repo rate which is 3.5% lower than prime however they have to do it as a collateralised borrow (i.e. they have to give the SARB security, usually government bonds) and it is also going to invite massive scrutiny onto your business model and risk management from the SARB if you make use of said facility. The idea is that the SARB is a lender of last resort and you only go to them to borrow money if you're f**ked and can't get it elsewhere (e.g. other banks, deposits etc.). So no, them borrowing from SARB would smell significantly more like trouble than high deposit rates.
Great insight here. Thanks.
Reg TymeBank and NSFR.
Can you please shed some light on TymeBank's business model. I cannot understand it. They are not accepting fixed deposits...
a. How are they able to maintain the right capital adequacy ratios or NSFR
b. How the heck are the going to be profitable with the rates , which are all short-term and can be withdrawn with a mere 10-day notice
One of the biggest reasons for AfricanBank - the last time they went into curatorship - was that they did not have enough fixed deposits. They are clearly addressing it this time round & heavily advertising.
Thoughts?
I don't work for Tyme bank and I haven't really researched their business model so I can't really comment on it (i'm also not involved in liquidity risk management so my knowledge on the subject is not 100%) but:
a. It is possible to meet the NSFR requirements without fixed deposits (and without retail funding at all) it's just more difficult to do since the inclusion rates for wholesale funding are lower than retail. Capital adequacy ratios are a completely different thing, designed to protect against other risks (NSFR and LCR are for liquidity risk, capital adequacy ratios are for Credit, Operational and Market risk at a high level). Capital adequacy ratios are usually more stable and are bolstered by retained earnings each year as well as the issuance of equity, preference shares and subordinated debt.
b. It's probably cheaper to pay those rates on the lower volume of deposits than to pay lower rates on the higher volume of funding they would need if they were to use wholesale funding. Alternatively their lending products could be at higher rates (because the important bit is the difference between funding and lending rates, not the actual level of the rates themselves).
Dimeon
Member
Hi all.
I am Dimeon van Rooyen, the content manager at Fedgroup and would like to clarify why we advertise our rates in the way we do.
The 11.3% rate is the five-year effective annual rate. We used this rate because this is also the rate that the banks used to advertise the returns on their five-year fixed investments, thus allowing you to compare apples with apples. We have noted that the banks have changed their quoted rates to the one-year effective rate instead. Since they have all decided to do so within the last couple of months, it suggests that they have been directed to do so by the FSCA.
The FSCA has not been in touch with us about the way we advertise our rates, but we strive to be proactive, transparent and committed to make our rate comparable to our competitors. We are therefore in the process of revising how we advertise this rate, and we will make the necessary changes ASAP.
Thanks for being vocal about this. We go to great lengths to explain how our rate works and our clients know exactly, down to the cent, how much they will earn over their investment terms. But if the way the industry communicates its rates has changed, then we need to follow suit.
I am Dimeon van Rooyen, the content manager at Fedgroup and would like to clarify why we advertise our rates in the way we do.
The 11.3% rate is the five-year effective annual rate. We used this rate because this is also the rate that the banks used to advertise the returns on their five-year fixed investments, thus allowing you to compare apples with apples. We have noted that the banks have changed their quoted rates to the one-year effective rate instead. Since they have all decided to do so within the last couple of months, it suggests that they have been directed to do so by the FSCA.
The FSCA has not been in touch with us about the way we advertise our rates, but we strive to be proactive, transparent and committed to make our rate comparable to our competitors. We are therefore in the process of revising how we advertise this rate, and we will make the necessary changes ASAP.
Thanks for being vocal about this. We go to great lengths to explain how our rate works and our clients know exactly, down to the cent, how much they will earn over their investment terms. But if the way the industry communicates its rates has changed, then we need to follow suit.
zerocool2009
Honorary Master
Dear Dimeon, thanks for giving feedback. Hats off to you in this regard. Wish many more firms would learn from this (have someone online who can comment).
At the end of the day, nothing is misleading (it is how customers understand a product). Dont just for the highest interest rate. Rather read and understand it (including the fine print and t's and c's)
Wow this is impressive! Well done to you and team for addressing this.
Damian - to be clear, though, your statement "The 11.3% rate is the five-year effective annual rate ". This is not the case. Rather it is 'simple interest'
See here for a definition of effective interest rate : https://en.wikipedia.org/wiki/Effective_interest_rate
See here for a calculator: https://www.miniwebtool.com/effective-interest-rate-calculator/?i=9&n=12. The 9% nominal equates to an effective annual rate of 9.38%
See definition of simple interest here: https://en.wikipedia.org/wiki/Interest#Simple_interest . Your 11.3% is Simple Interest
zerocool2009
Honorary Master
Doing some quick reading up .....
FedGroup did nothing wrong, nor are they misleading to be honest.
It STATES very BIG .... 11.33% effective and 9% nominal p.a.
FedGroup did nothing wrong, nor are they misleading to be honest.
It STATES very BIG .... 11.33% effective and 9% nominal p.a.
Disagree. Read these two articles. Same thing applies here.
- Absa- https://mybroadband.co.za/news/banking/279623-beware-absas-13-interest-rate-fine-print.html
- Nedbank- https://www.iol.co.za/personal-fina...-were-simple-with-its-13-percent-rate-2030361
Yes FedGroup are disclosing the 9% nominal, but it is hidden at bottom of page. The 11.33% is the advertised rate in bold for the Growth option.
Look it is not something that the FSCA requires to my knowledge, BUT it is misleading and is part of TCF.
Like Absa and Nedbank did before them, they should change their advertising. Period!
Yes at
zerocool2009
Honorary Master
What am I missing ? Opened up their basic URL ... This is HUGE
zerocool2009
Honorary Master
Understand what is effective and what is nominal (thats the bottom line). Effective isnt compounded at all
Reg: "Effective isnt compounded at all"
Wrong!
Effective rate is due to the result of compounding.
Simple rate is not compounded.
See here - same as wikipedia article -> https://www.investopedia.com/terms/e/effectiveinterest.asp
