Purpose

Interest compensation as used in the current account system is a one-level procedure with no relocation of the result. Interest and charges can be compensated for the currencies participating in EURO conversion, in the EURO currency, and across more than one bank area.

Implementation Considerations

You make the following settings in the implementation guide (IMG) to enable interest compensation in your bank:

By choosing Master Data → Limits → Define Limit Categories you define the limits that are needed for interest compensation. The following limits are relevant for interest compensation:

Interest compensation - overdraft limit: Used for calculating overdraft interest for interest compensation.

Internal limit of interest compensation: Controls the coverage check of the payment transactions. The account pool for interest compensation may be overdrawn up to this limit.

External limit of interest compensation: The limit that is communicated to the customer (for information purposes).

Select the feature characteristics for interest compensation by choosing Master Data → Product Definition → Product → Create Product

Select the hierarchy type for interest compensation by choosing Master Data → Account → Maintain Account Relationship Types

Define the interest compensation methods that you want to use for interest compensation by choosing Periodic Tasks → Interest Compensation → Specify Interest Compensation Method . You can define more than one method for selection when you create a hierarchy. Four methods are supplied, but you can also define your own methods. A method corresponds to a certain combination of the seven indicators on the detail screen. Two of the seven indicators are dependent on each other, meaning that a total of 96 different methods and not 128 methods are possible.

Integration

Interest compensation is run automatically during account balancing, whereby the balances of the accounts in an account pool are fictitiously summarized. Then the interest and charges of the accounts to be compensated are calculated using the total balance of the account pool and are posted to the root account. The balancing result is only posted, no account balances are carried forward.

Process Flow

Maintaining account master data for balancing

You can create accounts specifically for interest compensation or maintain existing accounts as required.

In the account master data, choose the “Balancing” screen, and specify the date of the next balancing, the period and the key date for the following balancing or interest compensation.

Note:

Before you can add an account to an account pool, certain requirements must be met that depend on whether the account was created specifically for interest compensation, or if an existing account has been maintained. Accounts in an account pool must always have the same time periods and the same key date.

New accounts:

The time periods, the key date and the next balancing date must be identical. The accounts also need to have been opened on the same date, but if the opening dates are not identical, the “Valid From” date must be the same as the opening date of the root account. The opening dates of the subordinate accounts may be on or after the opening date of the root account.

Existing accounts:

The time periods, the key date, and one of the future balancing dates must be identical.

Example for the same date in the future:

Two accounts are to be included in an account hierarchy. The time periods of the first account are set to three months, and to two months for the second account. The balancing date of the first account is03/31/2006and that of the second account is04/30/2006. Both are to be included in the account hierarchy on07/01/2006, which is allowed, because a future balancing date coincides for both.

Example for a different date in the future:

Two accounts are to be included in an account hierarchy. The time periods of both accounts are set to three months. The balancing date of the first account is03/31/2006and that of the second account is04/30/2006. Neither account will ever have the same balancing date and cannot, therefore, be included in the same account hierarchy.

Creating an interest compensation hierarchy

Once you have prepared the accounts for interest compensation, you create these in an account pool, known as the interest compensation hierarchy. For more information, see Creating Account Hierarchy for Interest Compensation .

To change a current interest compensation hierarchy, you need to end it, copy it and make the changes to the copy. For more information, see Changing Account Hierarchy for Interest Compensation

Start of interest compensation

The calculation period of interest compensation starts with the “Valid From” date of the account hierarchy. From this date, the system calculates the balancing result using the method that you specified, and posts the result to the root account.

Interest compensation log

The result of interest compensation is displayed on the root account.

You can also display the balancing result without interest compensation, whereby the system balances the account “normally” without compensation and in an update run, without updating the result. This function is offered for documentation purposes only.

Interest compensation result on the root account:

Select the root account in display mode.

You are now in the account master data.

Choose Environment → Balancing → Display Balanced Periods

The system displays the period list and the compensation result.

Balancing result without interest compensation:

Choose Information System → Interest Scale

The system displays the “Interest scale for normal account balancing”. This list shows the calculation without interest compensation.

Other notes:

Every time you balance an account from anywhere in the current account system (for example, new run, restart, or early balancing), the system also runs interest compensation.

If an account changes the account pool, and if the period in which the account was a member of another account pool needs to be recalculated, the system recalculates the whole account pool, not just the one account. The same applies for value dates in the past and postings to prior periods.

Restrictions

It is not possible to balance one account individually in an account pool. If an account is part of a hierarchy, interest is always compensated.

Tip:

To compensate interest for a single account hierarchy, choose one of the accounts in this hierarchy. You can choose any account of the hierarchy, including subordinate accounts.