Follow the steps described below to set up the account type interest method with floating interest.

1. Go to Accounts > Pricing > Account type interest.

2. Click the Create account type interest method button.

3. Fill in the details for the:
4. Click the Create new account type interest button.

In the interest main settings you have the option to choose between two methods for determining the effective interest rate:

1. Forming the applied interest rate as a percentage of the base rate;

2. Forming the applied interest rate as a constant difference from the base rate.

You can find examples explaining each of these options below.

Configuring margin type and default margin rate

Let's assume you would like the effective rate to be 2% less than the base rate. Then, you should make the following configuration selection:

• Select the margin type value fixed percentage that is subtracted from the base rate,

• Set the default margin rate value to 2%.

Adding min and max margins

Minimum and maximum margin rates act as boundaries for manual adjustments to the effective rate. Let's assume you want to limit the manual adjustment of the effective rate difference from the base rate to 3% maximum and 1% minimum. Then, you should set:

• Min margin rate to 1%,

• Max margin rate to 3%.

Configuring margin type and default margin rate

Let's assume you would like the effective rate to be 60% of the base rate. Then, you should make the following configuration selection:

• Select the margin type value percentage of the base rate that is subtracted from the base rate,

• Set the default margin rate value to 40% (100% - 40% = 60%).

Adding min and max margins

Minimum and maximum margin rates act as boundaries for manual adjustments to the effective rate of one particular account. Let's assume you want to restrict the manual adjustment of the effective rate to a maximum of 80% and a minimum of 40% of the base rate. Then, you should set:

• Min margin rate to 20% (100% - 80% = 20%),

• Max margin rate to 60% (100% - 60% = 40%).

The purpose of the explanatory examples on this page is to assist you in selecting between two methods of calculating effective interest rates.

Sample use case

Suppose we have to set up two floating interest rates.

1. The first set is named Effective interest rate as a percentage.

   • Margin type = Percentage of the base rate that is subtracted from the base rate.

   • Default margin rate = 40%.

2. The second set is named Effective interest rate as a difference.

   • Margin type = Fixed percentage that is subtracted from the base rate.

   • Default margin rate = 2%.

The picture below shows how effective interest rates change with different base rates:

1. Base rate of 5%

2. Moderate increase to 7%

3. Moderate decline to 3%

4. Substantial decline to 1%

Example details

The differences summarised

To choose between two margin type configurations for floating interest, consider these differences:

• The effective interest rate, calculated as the difference between the base rate and the margin rate, is more sensitive to changes of the base rate than the interest rate calculated as a percentage of the base rate.

• The effective interest rate calculated as the difference between the base rate and the margin rate, becomes 0 when the base rate drops below the default margin rate.

• The effective interest rate, calculated as a percentage of the base rate, is positive as long as the base rate is positive.