What: Add an option to set up deposit accounts with “Simple Interest” (and rename current method to “Compounded Interest”). If both simple and compounded interest methods are supported:
(a) Compounded Interest: current behaviour, i.e. after each Interest Applied transaction, interest for the next period is calculated based on previous balance + interest applied amount.
(b) Simple Interest: interest for each period is calculated only on the previous balance (either average or minimum, depending on the product specification).
For example, with a 5 year fixed deposit of 1,000,000 and yearly interest of 5%, each year interest in the amount 50,000 is applied. On the accounting side: Interest Expense would be debited and Interest Payable would be credited.
- Interest Payable is cleared when the customer withdraws the interest (therefore, it will also require an “Interest Paid” transaction - to be clarified during design)
- When the client withdraws, there should be an option to define some kind of “withdrawal allocation order” - e.g. if the client should withdraw the interest first, then the deposit accounts’ “principal” balance.
Why: Some organisations that offer deposits might not want to capitalise interest. Especially with big investments, this would result in large differences in the interest calculation. Simple and compounded interest are the basic methods used for deposits, it would be good for Mambu to support both.