Prior to computerisation of the Bank's
accounting system, the calculation of interest was performed manually, whether the branch records were maintained by hand or by machine.
To assist clerks in making the calculations, printed Interest Charts were provided. The charts were reprinted whenever there was a
change in the rate of interest paid, and new charts were introduced for new products, ie the No 2 Department and the No 3 (Investment)
Department. The various Departments' charts were distinguished by colour coding (No 1: white; No 2; green; No 3: pink).
Charts were printed in sets of twelve - one for each month of the year. Each chart showed the amount of interest for various amounts
of principal, for two periods. The two periods represented the number of months remaining in the Bank Year (ie up to the next March
Thus, in the
first month of the Bank Year (April), the chart would have interest calculations for twelve months and eleven months. These two sets
of figures were printed in two blocks, side by side. The left-hand side of the chart (containing the higher number of months) was
known as 'The Withdrawal side of the chart' and the right-hand side was 'The Deposit side of the chart'. As an assistance to prevent
using the wrong side of the chart, the printing of the figures was in black and red respectively.
Where the maintenance of the
ledgers was performed by hand, interest calculations were made as the individual deposit or withdrawal was posted to the depositor's
account. For a deposit made in April, therefore, 11 months' interest would be calculated by reference to the amount of the deposit
and the relevant interest figure on the chart. The amount so calculated would then be inserted in the interest column of the ledger,
alongside (and to the right) of the amount of the deposit; these two figures appearing below the amounts of principal and interest
already standing to the credit of the depositor. If no further transactions were to occur on the account before March 31st, the total
of the interest column would be added to the principal column as 'capitalised interest' at the year-end, and this would then become
the new principal for the year commencing April 1st. A complete year's interest would then be inserted in the interest column, the
value of which would only be adjusted as transactions occurred during the Bank Year, as previously described.
A withdrawal made
in April, therefore, forfeited a whole year's interest. An exception to these methods was made in the case of deposits made on the
first day of the month, and withdrawals made on the last day of the month. These exceptions ensured that the interest allowed to the
depositor was in accordance with the 'Note as to Computation of Interest' - a deposit on the first day of the month earned interest
from that day; a withdrawal on the last day of the month did not lose a whole month's interest. This 'concession' was not provided
by Trustee Savings Banks, thus requiring a different calculation method to be adopted for the Birmingham Municipal Bank when it joined
the TSB Computer Consortium.
Where the maintenance of ledgers was performed with the assistance of accounting machines, the interest
calculations were still performed manually using the same charts. At these branches, the amount of interest to be credited or debited
would be written on the transaction slip, to be 'picked up' by the machinist as the amount of the deposit or withdrawal was posted.
the amount of interest was calculated for a transaction that included a fraction of a Pound, it was necessary to ensure that the impact
of that fraction was taken into consideration. With a deposit, for example, if the fraction 'rounded up' the account principal to
the next Pound, an extra Pound's interest was allowed.
House Purchase Department
In the case of advances on
mortgage, the Bank's initial Regulations contained the following regarding Interest on Advances:
Interest on Advances shall be
charged at the rate of one penny per pound per month on the balance outstanding, or such other rate as the Committee of management
may from time to time determine, and which is in force at the time the advance is made.
'One penny per pound per month' (in pre-decimalisation
currency, when there were 240 pence in a Pound) equalled an interest rate of 5%.
Later editions of the Regulations did not specify
the current rate:
Interest on Advances shall be charged at such rate per pound per month on the balance outstanding as the Committee
of Management may from time to time determinate, but in the case of an advance already made the rate of interest in force at the time
the advance was made shall not be exceeded.
The method of calculation prescribed by the Regulations, ie calculated on a monthly
basis on the current balance outstanding, was fairly unique to the Birmingham Municipal Bank. As described in the History of the House
, the Bank adopted this method to follow the practice of the Bolton Co-operative Society. The majority of lending
institutions calculated interest either annually or half-yearly, thus penalising the mortgagor by not giving immediate credit for
payments made between calculations. The Bank's publicity in its early years emphasised this advantage, which could encourage mortgagors
to make payments in excess of the minimum requirement, and thus produce an immediate benefit in the amount of interest payable:
of the advance can be made either by a fixed monthly instalment of principal together with interest charged on the diminishing monthly
balance, known as the "reducing" method, or by a fixed monthly sum representing both principal and interest, known as the "equated"
method. By adopting the "reducing" method of repayment, you effect a saving in interest and obtain an advantage when making payments
in excess of the monthly instalment.
Interest calculations were made with the use of Interest Charts as described above. In the
case of mortgages, however, calculations were made on the monthly anniversary of the advance, not when a repayment transaction was
made. A system of index cards indicated which mortgage accounts were to be capitalised on a particular day of the month. Reference
to the individual mortgage account established the current balance outstanding on the loan, and the Interest Chart provided the amount
of that month's interest to be debited to the account.