Breakage Costs For Fixed Term Accounts

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Killianb

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Hi everyone,

I have been wanting to deposit €40k in a 1 year fixed term deposit account but I am finding it difficult to estimate the costs should I (worst case scenario) have to withdraw the full amount prior to maturity.

KBC state their breakage costs are "A x B % x C Where:
A - is the amount withdrawn; B % - is the difference between the prevailing market Interest rate for a term that coincides or is closest to the number of days remaining in the term, and the Interest rate on the Standard Fixed Rate Deposit Account; and
C - is the number of days remaining in the term, then divided by 360".

The bank said they cannot speculate on changes in market interest rates but I have no idea if this means the fees could be in the region of €100, €500, €1,000, €5,000 etc...

Would anyone be able to give me an example based on changes in market interest rates in the last number of years which would estimate possible breakage fees on €40k withdrawn after 6 months?

Thanks for your help,

killian
 
Hi Killian,

The KBC withdrawal penalty is as clear as mud.

Maybe Nationwide UK is an option for you. The Nationwide UK early withdrawal penalty is simply 90 days interest.
 
Killianb said:
Hi everyone,

I have been wanting to deposit €40k in a 1 year fixed term deposit account but I am finding it difficult to estimate the costs should I (worst case scenario) have to withdraw the full amount prior to maturity.

KBC state their breakage costs are "A x B % x C Where:
A - is the amount withdrawn; B % - is the difference between the prevailing market Interest rate for a term that coincides or is closest to the number of days remaining in the term, and the Interest rate on the Standard Fixed Rate Deposit Account; and
C - is the number of days remaining in the term, then divided by 360".

The bank said they cannot speculate on changes in market interest rates but I have no idea if this means the fees could be in the region of €100, €500, €1,000, €5,000 etc...

Would anyone be able to give me an example based on changes in market interest rates in the last number of years which would estimate possible breakage fees on €40k withdrawn after 6 months?

Thanks for your help,

killian
Click to expand...

Lets say that the 40K is deposited at 4% for 1 year. You withdraw the money after 6 months.

The total interest for the year is 1600 ( Lets ignore DIRT for simplicity)
After 6 months, you withdraw the money.

At the time, the 6 month fixed rate is 5%.

The breakage fee is the different between what they would have paid you in interest for the last 6 months at 4%, compared to the interest they would pay someone who deposited 40k at 5% for 6 months.

A = 40k
B = 5% - 4%
C = 0.5

The total is €200.

The Nationwide UK policy, which is simpler, would result in a breakage fee of €400.

I used the example interest rates above as they are simple.

Currently, the 6 month fixed rate is probably lower than the original 1 year rate.

I dont know what KBC policy is, in these circumstances. Investec, who have a similar policy, use a similar formula with 0.5% as a "fee", so the breakage fee would be €100.
 
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