I blogged about my experience with closing an Ally CD account a while ago. But as I was writing that post, I found that I had a hard time reproducing the numbers on my statements.
Here are the facts:
- 4/9/2013 – I deposited $7,000 into an Ally CD account
- 12/31/2013 – Interest paid in 2013 is $55.73 per the 2013 1099-INT
- 4/21/2013 – I closed my account. Per the April statement the interest paid in 2014 is $23.09, and the early withdrawal penalty is $12.57.
- The annual percentage yield is 1.09%
Total interest paid is $55.73+$23.09 = $78.82
First, let’s check the math on my 1099-INT. I am using this formula:
= principal amount
= time period the intial amount is deposited for in years
= number of times the interest is compounded per year
= annual interest rate
= total amount accumulated after t years
The principal amount is = $7,000 and the interest is compounded daily, = 365. Assume that the interest earned during the day is credited at 0:00am the next day. Then interest is compounded 266 times in 2013 from 4/9/2013 to 12/31/2013. So we have:
So, should the interest for 2013 be $55.83 instead of $55.73? But wait, the $7,000 was not in the account for the entire day on 4/09/2013. I check my account activity and it turns out that I transferred the money into my CD at 11:59am. On 4/09/2013 only $7,000 x 1.09% x (0.5/365) ~ $0.1045 of interest is earned. Using = $7,000 x 1.09% x (0.5/365) , the total amount from 4/09/2013 to 12/31/2013 comes out to be:
Okay, much better. Now it is only off by only 1¢, which is probably due to rounding error.
Let’s apply this to 2014. I am going to use = $7,055.73 as the principal amount. Interest is compounded 110 times from 1/1/2014 to 4/21/2014:
There is a difference of 13¢ when compared with the statement amount of $78.82. I am already assuming that no interest is earned on 4/21, the day that I called customer service, but somehow my number is still more than the one on the statement.
What about the penalty? It doesn’t seem like the penalty is the interest that I earned in the last 60 days:
The penalty is closer to the first 60 days of interest had the initial deposited amount been in the account for a full 60 days.
But my calculation is still off, this time by 2¢.
I am really bothered by the fact that I cannot arrive at the exact amount on the 1099-INT and on the April bank statement. All my calculated numbers are a couple pennies off. I am not sure if it is due to rounding error or if my math is incorrect.
If you are not interested in checking my calculation, it is still a fun exercise to check the math on the interest in your own online banking account. Let me know what you find out!