Calculating Interest and Maturity Processing

Portico offers two methods for calculating interest on certificate balances, simple and compound interest. Once established, the method should only be changed on the first day of a new dividend/interest period. Unlike regular shares, interest rates for certificates are specified per individual, rather than at the certificate type level.

Simple Interest Calculation

Portico can calculate interest on certificates based upon applying the designated interest rate over the entire period. This method is known as simple interest and processes similar to dividends on share accounts, except that the calculation period is based on actual days as opposed to fractions of the year. The calculated days for interest can be based on a 365-day basis, or on a 360-day basis where each month is considered to have 30 days.

Here is an example of a simple interest calculation:

ABC Credit Union offers $1,000 one-year certificates that pay 8% quarterly on a 365-day base certificate.

31 days - January
28 days - February
31 days - March
90 days - Total

The interest is calculated as follows: .08 x (90/365) x 1,000 = $19.73

Dividends on shares would have been calculated based on 8% for a quarter of the year (365/4 = 91.25 days) and not the actual number of days.

Compound Interest Calculation

Portico can calculate interest on a certificate over the calculation period (actual number of days) by compounding the interest rate daily over the period and yielding a higher effective rate. The 360-day base year can also be used for compounding. Every month is then assumed to have 30 days.

Periodic Interest Payments

For certificates that accrue periodic interest payments, the processing effects are identical to those produced during the processing of dividends on share accounts. The only difference is that the interest is paid on the number of days in the current period (i.e. for 365-day base, actual days; for 360-day base, 30 days per month) while most share dividends are based on a portion of a year.

Maturity Processing

As a certificate matures, the accrued interest will be calculated (the interest may be the final periodic interest payment, or payment of the amount earned during the life of the certificate). The interest is added to the certificate balance, deposited into a share account, or disbursed by check.

Based upon certificate renewal code, once a certificate reaches maturity it can either be automatically renewable (which means that it will begin to accrue interest again), or non-renewable (in which case it will be removed from future interest calculations).

The Maturity Options group box on the Certificate Purchase dialog box indicates the certificate type that the certificate will automatically renew to at maturity and the number of days to use in calculating the new maturity date for the renewed certificate. The Term and Type fields in the Renewal Certificates group box on the Certificate Profiles – Account Information tab set the default renewal values for a certificate type. If the Term and Type fields are blank, the certificate will automatically renew to the same type and term. The term is determined by calculating the number days between the purchase/renewal date and the maturity date.

If the certificate will automatically renew to the same type and term, the following information is updated:

Maturity Date will become the old maturity date plus one maturity period (determined by computation of the actual number of days between the old purchase and maturity dates).
Purchase Date will become the old maturity date plus one.
Rate will come from the Current Dividend Rates and Balances grid on the Certificate Profiles - Dividends tab.

If the certificate will automatically renew to a different type and term, the following information is updated:

Maturity Date will become the old maturity date plus the number of days in the Term field in the Will Renew To group box on the Certificates – General tab.
Purchase Date will become the old maturity date plus one.
Rate will come from the Current Dividend Rates and Balances grid on the Certificate Profiles - Dividends tab.

If the certificate will automatically renew and the certificate type is set up for weekend or holiday maturity processing (Days Closed Processing check box is selected on the Certificate Profiles – Account Information tab), the following information is updated:

Maturity Date will become the old maturity date plus the number of days in the Term (in days) field on the Certificates – General tab.
Purchase Date will become the old maturity date plus one.
Rate will come from the Current Dividend Rates and Balances grid on the Certificate Profiles - Dividends tab.

A non-renewed certificate will be flagged as matured and waiting for surrender. The certificate will be reported on the Time Deposits Maturing Report 100 until it is surrendered online. If the auto surrender feature is used, the balance is transferred to shares automatically.

Notices can be produced for matured certificates and automatically renewed certificates. Maturity notices remind the member that the certificate has reached maturity. The member may then direct the credit union on what to do with the funds. Automatic renewal notices notify the member the new time period the certificate will be in force and the new rate it is earning.

Each certificate can have a credit-union defined maturity notice message and a renewal notice message created using the Notice Messages window. On the Notice Messages window, you can set up message details M03 through M99. The default message details are M03 and M04. Specify the message detail numbers in the Renewal Message fields in the Notices group box on the Certificate Profiles – Account Information tab.

The messages can be different for each type of certificate account but must be designed and submitted to Portico for processing.

General Ledger Effects

As a certificate accrues periodic interest, it can be added to the certificate balance or deposited into the lowest numbered share type on file for the member. If the interest is added to the certificate, the general ledger specified in the Accrual field in the GL Accounts group box on the Credit Union Profile – Account Information tab will be increased (credited) by the total of the interest paid on a given certificate type. If the interest is deposited into the member’s share account, the general ledger specified for the share type will receive the credit. In both cases, the debit portion of the interest calculation is posted to the account specified in the in the Dividend field in the GL Accounts group box on the Credit Union Profile – Account Information tab.

Other transactions posting against the certificate are reflected in the general ledger in the same manner as a share transaction. That is, deposits credit the certificate and debit the appropriate general ledger and vice versa for withdrawals.

On the general ledger at a credit union, certificates made by the credit union are assets and carry positive balances. The general ledger (GL) account number used by credit unions for their certificates is within the 701000 - 701999 general ledger account series. The following illustrates how a debit and credit apply to certificates:

A debit is a certificate surrender and reduces the balance of the GL account.
A credit is a new certificate and increases the balance of the GL account.