{"id":12732,"date":"2025-03-13T10:29:39","date_gmt":"2025-03-13T11:29:39","guid":{"rendered":"https:\/\/www.premium-partners.net\/?p=12732"},"modified":"2025-03-16T12:36:50","modified_gmt":"2025-03-16T12:36:50","slug":"words-on-wealth-banks-carry-on-deceiving-us-with-simple-rates","status":"publish","type":"post","link":"https:\/\/www.premium-partners.net\/fr\/builder\/words-on-wealth-banks-carry-on-deceiving-us-with-simple-rates\/","title":{"rendered":"Words on wealth: banks carry on deceiving us with \u2018simple\u2019 rates"},"content":{"rendered":"

This post<\/a> was originally published on this site<\/a><\/p>

<\/p>\n

The practice by<\/span> South African banks of advertising simple interest rates on fixed deposits has become more widespread. Only two banks in the \u201cBig Five<\/span>\u201d,<\/span> FNB and Capitec, have not resorted to this deceptive and confusing practice, and smaller banks and other institutions are doing it.<\/span><\/p>\n

I covered this issue in the past <\/span>in the hope<\/span> that the institutions concerned would do the <\/span>honourable<\/span> thing. They haven\u2019t. Instead, more have clambered aboard the bandwagon, with the attitude that \u201cif my competitor can get away with it, so can I\u201d. The trouble with everyone doing it is that the competitive advantage gained by luring investors to invest through deceptive means is lost.<\/span><\/p>\n

Grade 8 maths lesson<\/span><\/strong><\/p>\n

The universally accepted way of quoting interest on an investment is <\/span>by<\/span> using the compound annual growth rate (CAGR). Compound interest, as any 8th Grader will tell you, is when you earn interest on interest, meaning your capital grows exponentially. The banks refer to the \u201cnominal interest rate\u201d and the \u201ceffective annual rate\u201d, which is slightly higher than the nominal rate because the interest is calculated daily or monthly. This is the rate you should be looking at when comparing rates from providers.<\/span><\/p>\n

The questionable part is banks showing the \u201cinterest rate at maturity\u201d when the interest is reinvested. <\/span>It\u2019s this rate that banks trumpet<\/span> in their advertising.<\/span> To arrive at this rate, which is substantially higher than the CAGR, they use a simple percentage of the original amount.<\/span><\/p>\n

An example<\/span>: R1 000 capital invested over five years at an effective CAGR of 10% will give you a final sum of R1 610. The banks then do a reverse calculation, taking the R610 you earned in interest and dividing it by five, giving you R122 per year. Converted to a percentage, this is 12.2%, <\/span>which is<\/span> the simple rate on the original capital. To a lay consumer, a return of 12.2% sounds better than one of 10%. <\/span><\/p>\n

Bank rates<\/span><\/strong><\/p>\n

I compared the \u201cBig Five\u201d banks on a R100 000 fixed deposit invested for five years (rates as of March 11, 2025). Here is what their websites say in the small print and what your final amount would be. The calculations are mine. In brackets, I calculated what the final sum would be if the advertised simple rate were a CAGR rate.<\/span><\/p>\n

\u2022 Absa:<\/span><\/strong> The \u201cmonthly\u201d rate (\u201cThe rate associated with the investment should you choose to get your interest paid monthly.\u201d) is 8.35%. <\/span>No<\/span> mention of an effective annual rate. The rate on maturity (\u201cThe rate associated with the investment should you choose to get all your interest paid when your investment matures.\u201d) is 10.45%. Final amount: R152 250 (CAGR: R164 372).<\/span><\/p>\n

\u2022 Capitec:<\/span><\/strong> The nominal rate (\u201cThe\u202fnominal interest rate\u202fis used to calculate the\u202fdaily interest earned\u202fon your account balance, which\u202faccumulates\u202funtil it is <\/span>capitalised<\/span> on an agreed date every month.\u201d) is 8.65%. The effective rate (\u201cThe\u202feffective annual interest rate\u202fis calculated by taking into account the fact that\u202finterest is earned\u202fon\u202f<\/span>capitalised<\/span> interest\u202fover a period of 12 months.\u201d) is 9.00%. Final amount: R153 862.<\/span><\/p>\n

\u2022 FNB:<\/span><\/strong> After struggling to open the interest rates page on the FNB website, the bank\u2019s media team kindly sent me their rates tables. On a five-year R100 000 fixed deposit, the nominal rate is 8.25% and the effective rate is 8.57%. No small print. Final amount: R150 851.<\/span><\/p>\n

\u2022 Nedbank:<\/span><\/strong> On an electronic fixed deposit the nominal rate (\u201cThe <\/span>annualised<\/span> interest rate that you will earn, calculated on the daily balance of your investment if interest is paid out monthly.\u201d) is 8.35%. The annual effective rate (\u201cThe <\/span>annualised<\/span> interest rate that you will earn on the money invested, compounded annually in arrears.\u201d) is 8.67%. The rate at maturity (\u201cThe rate you get if you choose to have all interest paid when your investment matures. Calculated using the original investment amount only at a fixed interest rate, with no compounding.\u201d) is 10.31%. Final amount: R151 547 (CAGR: R163 333).<\/span><\/p>\n

\u2022 Standard Bank:<\/span><\/strong> The nominal rate (with the following bizarre statement in the small print: \u201cThis rate does not consider the interest compounding effect.\u201d) is 8.59%. The interest at maturity (\u201cThe interest rate you will be paid at maturity of your Fixed Deposit account, assuming no interest is withdrawn.\u201d) is 10.50%. Final amount: R152 500 (CAGR: R164 744).<\/span><\/p>\n

Capitec outclasses its competitors in several ways. <\/span>When you compare apples with apples, its rate gives you the best overall return<\/span>, there<\/span> is no mention of \u201cinterest at maturity<\/span>\u201d,<\/span> and the explanations of the nominal and effective rates are easy to read and <\/span>easy to<\/span> understand.<\/span> While not offering the best rate, FNB is also direct and honest with consumers.<\/span><\/p>\n

It\u2019s interesting to note that the correct term, \u201csimple interest\u201d, never appears in the other three banks\u2019 interest-at-maturity explanations. <\/span><\/p>\n

Apples with apples<\/span><\/strong><\/p>\n

For an apples-with-apples comparison of interest rates on products from banks and other institutions, including rates on RSA Retail Bonds, go to RateCompare (<\/span>www.ratecompare.co.za<\/span><\/a>) <\/span>run by<\/span> Walter.<\/span> <\/span><\/p>\n

On his website, Walter describes his frustration in trying to find and compare rates on fixed deposits. \u201cI noticed <\/span>a number of<\/span> promising ads from banks offering anywhere between 9.5% to 13.3%. Yet, I could not help but notice that star (*) and the infamous \u2018terms and conditions apply\u2019. <\/span><\/p>\n

\u201cThe bottom line was this \u2013 the banks could not be trusted with their advertised rates. You see, there are different ways or methods to showcase the interest rate a bank is offering. When adverts are run, banks often quote \u2018simple interest\u2019. <\/span>Simple interest is not an accurate reflection and should be disallowed <\/span>to<\/span> <\/span>be<\/span> used.\u201d<\/span><\/p>\n

I couldn\u2019t agree more.<\/span><\/p>\n

FSCA statement on deceptive advertising<\/span><\/strong><\/p>\n

I approached the Financial Sector Conduct Authority (FSCA) on this deceptive practice and received the following statement in response: <\/span><\/p>\n

“The FSCA is mandated to regulate and supervise banks’ conduct regarding the financial products and services they provide. In fulfilling this mandate, the FSCA published The Conduct Standard for Banks 3 of 2020 to ensure the fair treatment of financial customers.<\/span><\/p>\n

\u201cIn South Africa, banks <\/span>are required to<\/span> disclose interest rates to their customers. Section 7 of the Conduct Standard provides that before, during, and after the conclusion of a contract, a bank must take reasonable steps to ensure that a financial customer is aware of all relevant facts that could influence the financial customer\u2019s decision relating to the financial product or financial service. Furthermore, a bank must ensure that its advertising is conducted in a way that is clear, fair, and not misleading, as outlined in section 6 of the Conduct Standard.<\/span><\/p>\n

\u201cSection 7(4) of the Conduct Standard further states that in the instance where a financial product provides for the payment of interest by the bank to the financial customer, the bank must appropriately describe the rate of interest concerned and also disclose to a financial customer the effective annual interest rate of the financial product.<\/span><\/p>\n

\u201cIn conclusion, the FSCA plays a crucial role in ensuring that banks adhere to proper conduct standards in <\/span>the provision of<\/span> financial products and services. Banks are required to disclose interest rates transparently and to ensure that financial customers are well-informed when making decisions. By mandating clear, fair, and non-misleading advertising, and requiring the disclosure of relevant interest rate information, the FSCA aims to promote fair treatment and protect the interests of financial customers.\u201d<\/span><\/p>\n

My comment: The banks have been advertising simple rates for years now and, to my knowledge, the FSCA has not acted to stop this practice. I\u2019m not holding my breath. <\/span><\/p>\n

* Hesse is the former editor of Personal Finance.<\/em><\/p>\n

PERSONAL FINANCE<\/strong><\/p>","protected":false},"excerpt":{"rendered":"

The practice by South African banks of advertising simple interest rates on fixed deposits has become more widespread. Only two banks in the \u201cBig Five\u201d, FNB and Capitec, have not resorted to this deceptive and confusing practice, and smaller banks and other institutions are doing it.I covered this issue in the past in the hope that the institutions concerned would do the honourable thing. They haven\u2019t. Instead, more have clambered aboard the bandwagon, with the attitude that \u201cif my competitor can get away with it, so can I\u201d. The trouble with everyone doing it is that the competitive advantage gained by luring investors to invest through deceptive means is lost.Grade 8 maths lessonThe universally accepted way of quoting interest on an investment is by using the compound annual growth rate (CAGR). Compound interest, as any 8th Grader will tell you, is when you earn interest on interest, meaning your capital grows exponentially. The banks refer to the \u201cnominal interest rate\u201d and the \u201ceffective annual rate\u201d, which is slightly higher than the nominal rate because the interest is calculated daily or monthly. This is the rate you should be looking at when comparing rates from providers.The questionable part is banks showing the \u201cinterest rate at maturity\u201d when the interest is reinvested. It\u2019s this rate that banks trumpet in their advertising. To arrive at this rate, which is substantially higher than the CAGR, they use a simple percentage of the original amount.An example: R1 000 capital invested over five years at an effective CAGR of 10% will give you a final sum of R1 610. The banks then do a reverse calculation, taking the R610 you earned in interest and dividing it by five, giving you R122 per year. Converted to a percentage, this is 12.2%, which is the simple rate on the original capital. To a lay consumer, a return of 12.2% sounds better than one of 10%.\u00a0Bank ratesI compared the \u201cBig Five\u201d banks on a R100 000 fixed deposit invested for five years (rates as of March 11, 2025). Here is what their websites say in the small print and what your final amount would be. The calculations are mine. In brackets, I calculated what the final sum would be if the advertised simple rate were a CAGR rate.\u2022 Absa: The \u201cmonthly\u201d rate (\u201cThe rate associated with the investment should you choose to get your interest paid monthly.\u201d) is 8.35%. No mention of an effective annual rate. The rate on maturity (\u201cThe rate associated with the investment should you choose to get all your interest paid when your investment matures.\u201d) is 10.45%. Final amount: R152 250 (CAGR: R164 372).\u2022 Capitec: The nominal rate (\u201cThe\u202fnominal interest rate\u202fis used to calculate the\u202fdaily interest earned\u202fon your account balance, which\u202faccumulates\u202funtil it is capitalised on an agreed date every month.\u201d) is 8.65%. The effective rate (\u201cThe\u202feffective annual interest rate\u202fis calculated by taking into account the fact that\u202finterest is earned\u202fon\u202fcapitalised interest\u202fover a period of 12 months.\u201d) is 9.00%. Final amount: R153 862.\u2022 FNB: After struggling to open the interest rates page on the FNB website, the bank\u2019s media team kindly sent me their rates tables. On a five-year R100 000 fixed deposit, the nominal rate is 8.25% and the effective rate is 8.57%. No small print. Final amount: R150 851.\u2022 Nedbank: On an electronic fixed deposit the nominal rate (\u201cThe annualised interest rate that you will earn, calculated on the daily balance of your investment if interest is paid out monthly.\u201d) is 8.35%. The annual effective rate (\u201cThe annualised interest rate that you will earn on the money invested, compounded annually in arrears.\u201d) is 8.67%. The rate at maturity (\u201cThe rate you get if you choose to have all interest paid when your investment matures. Calculated using the original investment amount only at a fixed interest rate, with no compounding.\u201d) is 10.31%. Final amount: R151 547 (CAGR: R163 333).\u2022 Standard Bank: The nominal rate (with the following bizarre statement in the small print: \u201cThis rate does not consider the interest compounding effect.\u201d) is 8.59%. The interest at maturity (\u201cThe interest rate you will be paid at maturity of your Fixed Deposit account, assuming no interest is withdrawn.\u201d) is 10.50%. Final amount: R152 500 (CAGR: R164 744).Capitec outclasses its competitors in several ways. When you compare apples with apples, its rate gives you the best overall return, there is no mention of \u201cinterest at maturity\u201d, and the explanations of the nominal and effective rates are easy to read and easy to understand. While not offering the best rate, FNB is also direct and honest with consumers.It\u2019s interesting to note that the correct term, \u201csimple interest\u201d, never appears in the other three banks\u2019 interest-at-maturity explanations.\u00a0Apples with applesFor an apples-with-apples comparison of interest rates on products from banks and other institutions, including rates on RSA Retail Bonds, go to RateCompare (www.ratecompare.co.za) run by Walter.\u00a0On his website, Walter describes his frustration in trying to find and compare rates on fixed deposits. \u201cI noticed a number of promising ads from banks offering anywhere between 9.5% to 13.3%. Yet, I could not help but notice that star (*) and the infamous \u2018terms and conditions apply\u2019.\u00a0\u201cThe bottom line was this \u2013 the banks could not be trusted with their advertised rates. You see, there are different ways or methods to showcase the interest rate a bank is offering. When adverts are run, banks often quote \u2018simple interest\u2019. Simple interest is not an accurate reflection and should be disallowed to be used.\u201dI couldn\u2019t agree more.FSCA statement on deceptive advertisingI approached the Financial Sector Conduct Authority (FSCA) on this deceptive practice and received the following statement in response:\u00a0“The FSCA is mandated to regulate and supervise banks’ conduct regarding the financial products and services they provide. In fulfilling this mandate, the FSCA published The Conduct Standard for Banks 3 of 2020 to ensure the fair treatment of financial customers.\u201cIn South Africa, banks are required to disclose interest rates to their customers. Section 7 of the Conduct Standard provides that before, during, and after the conclusion of a contract, a bank must take reasonable steps to ensure that a financial customer is aware of all relevant facts that could influence the financial customer\u2019s decision relating to the financial product or financial service. Furthermore, a bank must ensure that its advertising is conducted in a way that is clear, fair, and not misleading, as outlined in section 6 of the Conduct Standard.\u201cSection 7(4) of the Conduct Standard further states that in the instance where a financial product provides for the payment of interest by the bank to the financial customer, the bank must appropriately describe the rate of interest concerned and also disclose to a financial customer the effective annual interest rate of the financial product.\u201cIn conclusion, the FSCA plays a crucial role in ensuring that banks adhere to proper conduct standards in the provision of financial products and services. Banks are required to disclose interest rates transparently and to ensure that financial customers are well-informed when making decisions. By mandating clear, fair, and non-misleading advertising, and requiring the disclosure of relevant interest rate information, the FSCA aims to promote fair treatment and protect the interests of financial customers.\u201dMy comment: The banks have been advertising simple rates for years now and, to my knowledge, the FSCA has not acted to stop this practice. I\u2019m not holding my breath.\u00a0* Hesse is the former editor of Personal Finance.PERSONAL FINANCE<\/p>","protected":false},"author":1,"featured_media":12734,"comment_status":"open","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-12732","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-builder"],"_links":{"self":[{"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/posts\/12732","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/comments?post=12732"}],"version-history":[{"count":1,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/posts\/12732\/revisions"}],"predecessor-version":[{"id":12733,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/posts\/12732\/revisions\/12733"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/media\/12734"}],"wp:attachment":[{"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/media?parent=12732"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/categories?post=12732"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/tags?post=12732"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}