KBC Breakage Fee very onerous?

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3CC

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Hi All,

I am just about to open a 1 year deposit account with KBC.

In my 'cooling off' letter that I just received, they pointed out the details of the breakage fee in case I need to get at the money during the term which is calculated as follows:

Breakage Fee = 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A - is the amount withdrawn;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 Fixed Rate Deposit Account (with withdrawal facility); and
C is the number of days remaining in the term.

So let's say I put in €40k for simple figures. And worst case scenario, I need to get half (€20k) of that back after 6 months.

I am allowed to access 25% of the initial sum without penalty so I presume the Breakage Fee is based on the remaining €10k.

A= €10k
B= 3.5% - 2% (wild guess)=1.5%
C= 183 days

Breakage fee = €10,000 x 1.5% x 183 days = €27,450 ! This exceeds the remaining balance so I actually could not take out €20k after six months - only around €13k!

Please tell me I have got this wrong.
 
I had presumed initially that my total should be divided by 365 (as you have done) to make the fee prorata to the time left on the deposit. But I cannot see that in the T&C's from KBC.

Do you think there is an error in the T&C's because I cannot see an error in my calculation.

The KBC conditions are[broken link removed] for reference. Look at the bottom of page 6 for the relevant clause.
 
It's divided by 360. Section 7 covers interest calculations. The breakage costs is calculated the same way even if it doesn't say it. Be aware though, that the use of the term 'prevailing market rate' allows them a lot of flexibility. Honestly if you think there is a chance that you will break the contract, don't invest. You will lose money.
 
Nationwide UK pay 3.65% for a year term deposit, deposits are protected under the UK deposit protection, and the penalty is clearer. It might be worth considering this option.
 
CiaranT said:
Nationwide UK pay 3.65% for a year term deposit, deposits are protected under the UK deposit protection, and the penalty is clearer. It might be worth considering this option.
Click to expand...

Clearer - Yes, better? No! You pay a quarter of your interest as a penalty no matter how much you have left to go on the deposit. In fact, your capital is not even guaranteed back, as would be for example the case if you broke the deposit after 2months, you would pay equivalent to 3 months interest. Also, no partial withdrawals allowed. So to use the example above, the 40k with 6months to go would have to be taken out in total, not just the 10k and the penalty would be €365 (40,000*3.65%*90/360)

Warning: Early closure of the account will result in a 90 day interest charge on the total balance. If the amount of interest accrued is less than this amount, the difference will be deducted from the balance on closure.

No partial withdrawals can be made once the account has been opened. However, you can withdraw all of your funds at any time by closing the account
 
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