HOW TO CHECK BANKERS’ CHARGES
Bankers make up their pass-books in two ways. When the customer is in
account with the banker the cash he pays in appears on the right-hand
side of his book, and the cheques he draws out on the left. The more
general method, however, is to make the bank in account with the
customer, when the debits and credits in the pass-book are an exact
copy of the client’s own cash-book, whereas the entries in the bank’s
ledger are reversed. The latter and more usual practice will be adopted
in this chapter.
Customers often complain that they are unable to check their
half-yearly charges, that they do not quite understand at what rates
they have been charged; and as some bankers are most careful to add
the interest and commission together, and then to enter the aggregate
in the pass-book as “charges” simply, it is a little difficult to
understand how they expect their clients to check their interest and
commission. For instance, suppose a man is charged £5 2s. 6d., and that
the banker writes in his pass-book:
By charges, £5 2s. 6d.
Here we have a puzzle that is more than Chinese in its intricacy and
suggestiveness, for it is evident that unless the customer remembers
that he has arranged to pay, say, 4 per cent. per annum interest and
⅛ per cent. commission, he will experience considerable difficulty
in verifying the figures. As a matter of fact, the companies are not
particularly anxious to enlighten him, for see how easily the client
could have checked his charges were they specified thus:--
By interest at 4 per cent. £4 2 0
” ⅛ per cent. commission on turn-over 0 15 6
” postages 0 5 0
-------
£5 2 6
Such a statement is almost beautiful in its simplicity, and the entry
“postages” may, perhaps, give us some clue to the mystery, as it is
evident that a manager, by debiting charges in one sum, is thereby
enabled to hide certain debits such as “postages,” “telegrams,” “legal
expenses,” “stamps,” and so on, at which, were they entered separately
in the bank-book, the customer would probably strongly protest. And
then, again, by adopting this method of darkness, those persons who
leave everything to the agent never know their rates, and they are
sometimes too timid to call and inquire, as though fearing that such a
request would reflect upon the agent’s honour.
Certain banks have an account open in their ledgers called Law Charges
or Sundry Charges, to which doubtful debits are posted in the names of
various customers. At the end of each half-year these sums are credited
to the account in question and included in the clients’ charges. When,
for instance, a manager does not wish a person to know that he is
paying a fee of £3 3s. to the bank’s solicitors for the examination
by them of certain deeds which he has deposited as security, he will
probably resort to this subterfuge.
We can now criticize the account of John Jones, who on the 31st
December, 1902, owed his banker £500 2s. 6d., and examine the entries
in his pass-book from that date to the 30th June, 1903, when his
bankers rule off their books and calculate their charges. Assuming that
Mr. Jones keeps proper books, he will have an account in his ledger,
which, after making allowance for cheques drawn but not presented
for payment, will agree with his pass-book in every particular. The
following is a copy of his bank-book:--
THE LONDON AND CHEATEM BANK, LTD., with MR. JOHN JONES.
--------------------------------+--------------------------------
Dr. | Cr.
--------------------------------+--------------------------------
1903. | 1902.
Jan. 20. To Cash £300 1 6 | Dec. 31. By Balance £500 2 6
| 1903.
Apl. 22. ” Cash 90 1 3 | Feb. 15. ” Smith 10 0 0
May 15. ” Cash 200 5 0 | Mar. 31. ” Jones 70 3 4
” 18. ” Cash 50 0 0 | Apl. 22. ” Robinson 8 0 6
” 31. ” Cash 9 0 0 | May 26. ” Self 5 10 0
June 10. ” Cash 100 0 0 | June 5. ” Williams 16 11 2
” 28. ” Cash 7 0 0 | ” 25. ” Brown 7 2 3
” 30. ” Interest 0 3 2 | ” 30. ” Charges 5 2 6
| ” Balance 133 18 8
---------- | ----------
£756 10 11 | £756 10 11
========== | ==========
|
June 30. ” Balance £133 18 8 |
Mr. Jones’ ledger, then, assuming that none of his cheques are
outstanding, will show the same balance at the debit of “bank,” though,
of course, the dates will not agree, as Mr. Jones credits the bank on
the day that he draws a cheque, whereas the bank debits him on the day
that it pays it. We can see that his banker paid a cheque to Smith on
the 15th February. If John Jones drew the said cheque on the 12th, then
he debited Smith’s account and credited the bank on the same day. But
these entries, as we shall see in our next illustration, appear upon
the opposite sides of the banker’s ledger.
Mr. Jones, whose securities are tangible, has arranged with the manager
that he is to pay 4 per cent. per annum on the overdraft and ⅛ per
cent. on his turn-over, and to receive 1½ per cent. on his daily
credit balances. Having received his pass-book, he wishes to check
his charges, and after making two or three attempts, he is convinced
of the futility of his efforts, so renounces his task in despair. He
has worked the figures out in his own way, which, though a little
primitive, he generally finds answers pretty well, and, as his figures
come to something like those entered in the pass-book, he supposes
that it is all right. Perhaps the following copy of his account as it
stands in the bank’s ledger may therefore prove both illuminating and
instructive:--
JONES, JOHN, General Dealer, 5, High Street, Exeter.
| | | |Dr.| | | |
Date. |Particulars.| Dr. | Cr. |or |Balance. |Days.| Total. | Total.
| | | |Cr.| | | |
--------+------------+---------+---------+---+---------+-----+---------+---------
1902. | | £ | £ | | £ | | £ | £
Dec. 31.| To Balance |500 2 6| |Dr.|500 2 6| 20 |10,000 |
1903. | | | | | | | |
Jan. 20.| By Cash | |300 1 6| ” |200 1 0| 26 | 5,200 |
Feb. 15.| To Smith | 10 0 0| | ” |210 1 0| 44 | 9,240 |
Mar. 31.| ” Jones | 70 3 4| | ” |280 4 4| 22 | 6,160 |
Apl. 22.| By Cash | | 90 1 3| | | | |
| To Robinson| 8 0 6| | ” |198 3 7| 23 | 4,554 |
May 15.| By Cash | |200 5 0|Cr.| 2 1 5| 3 | | 6
” 18.| ” ” | | 50 0 0| ” | 52 1 5| 8 | | 416
” 26.| To Self | 5 10 0| | ” | 46 11 5| 5 | | 235
” 31.| By Cash | | 9 0 0| ” | 55 11 5| 5 | | 280
June 5.| To Williams| 16 11 2| | ” | 39 0 3| 5 | | 195
” 10.| By Cash | |100 0 0| ” |139 0 3| 15 | | 2,085
” 25.| To Brown | 7 2 3| | ” |131 18 0| 3 | | 396
” 28.| By Cash | | 7 0 0| ” |138 18 0| 2 | 2,268[A]| 278
” 30.| ” Interest| | 0 3 2| ” |139 1 2+-----+---------+---------
| | | | | | 181 |37,422 | 3,891
| | | | | |
| To Charges | 5 2 6| | |133 18 8| 4 per cent. per ann.
| ” Balance |133 18 8| | | | on £37,422 for
| +---------+---------+ | | 1 day £4 2 0
| |756 10 11|756 10 11| | | ⅛ per cent. on
| | | | | | turn-over £617 0 15 6
June 30 |By Balance | |133 18 8|Cr.|133 18 8| Postages 0 5 0
| | | | | | --------
| | | | | | £5 2 6
| | | | | | ========
| | | | | | _Allowed_--
| | | | | | 1½ per cent.
| | | | | | per ann. on
| | | | | | £3,891 for
| | | | | | 1 day £0 3 2
--------+------------+---------+---------+---+---------+-------------------------
[A] Three days’ interest upon “cheques” paid to credit. 756 × 3.
Now everything should be as clear as the flowing brook to Mr. Jones. He
should, in the first instance rule a sheet of paper in exactly the same
manner as the specimen page of the banker’s ledger. He next carries
the entries from his pass-book to the ruled sheet, taking care that
each amount, whether debit or credit, is placed under its right date,
and at the end of each day, or when the next date appears, he extends
the balance, as in our illustration, for it is upon this balance
that the bank either allows or charges him interest for one, two, or
twenty days, as the case may be, at an agreed rate. He then multiplies
this balance by the number of days, and carries the product into a
“total” column, which he adds up at the end of the half-year. This
done, the rest is a very simple business for anybody who can manage a
rule-of-three sum.
The banker, we can see, brings forward the amount of Mr. Jones’
indebtedness on the 31st December when his books were ruled off. This
opening entry, which amounts to £500 2s. 6d., is placed in the debit
column of his ledger, and extended as a debit balance. Upon the morning
of the 1st January, therefore, one day’s interest was owing on £500,
but the next operation upon the account did not take place until 20th
January; and as from 31st December (excluding the 31st and counting 1st
January as one day) to 20th January (inclusive) there are twenty days,
the customer owes twenty days’ interest upon £500. If we multiply 500
by 20, as in our form, and carry the product into “total” column, he
then owes one day’s interest upon £10,000. The result, of course, is
precisely the same; so a banker, in order to save a multiplicity of
calculation, adopts this rule throughout, with the result that, at the
end of the half-year, his client owes one day’s interest upon £37,422.
Bankers, when referring to the figures in the “total” columns, speak
of them mysteriously as “decimals,” and the customer, upon hearing so
ominous a word, jumps to the conclusion that bankers’ calculations are
most difficult and involved, when, in reality, they are of the simplest
nature imaginable. Evidently the product in question is the result of a
simple multiplication sum; so why bankers should speak of extending the
“decimals,” when there is none to be extended, must ever remain one of
the enigmas of their trade.
As a rule, should the shillings in the balance column be ten or over,
the banker, in making his calculations, calls them one pound, and when
less than ten shillings he ignores them. On the 20th January, for
instance, the shillings are excluded, but upon the 26th May £47 is the
sum we have to multiply by five. Further, in arriving at the number of
days between two dates, exclude the first date and include the second,
or vice versa, but do not include both dates.
The second “total” column of our form is for creditor results, or,
as bankers incorrectly call them, creditor decimals, the left-hand
column being, of course, the debtor, and the right the creditor, just
as though they were left-and right-hand pages of a cash-book. Having
ascertained the number of days from date to date, we add them up, and
next proceed to balance them. From 31st December, 1902, exclusive, to
30th June following, inclusive, there are 181 days, and, as those are
the figures in our days’ column, we know that they are correct. Next we
add up the “total” columns, and here great care is necessary, because
it is impossible to balance the figures.
Dealing with the debit total first, we find that John Jones owes his
banker one day’s interest at 4 per cent. per annum upon £37,422.
Hence:--
(37,422 × 4 × 1)/(100 × 365) = £4 2s.
But Mr. Jones will make these figures £35,154, and the answer £3 17s.
1d., and upon asking for an explanation he will be told that he has
been charged three days’ interest upon the cheques he paid to his
credit during the half-year. The banker argues that his client receives
credit for the cheques he pays in immediately, whereas he himself has
to collect them through the “clearing,” and does not receive the money
for two or three days. The argument is somewhat fallacious as to the
length of time, but we need not discuss that minutely. Mr. Jones points
out that he pays in cash and local cheques as well as cheques upon
London and country bankers, and that, therefore, he cannot understand
why the manager charges him three days’ interest upon the total sum
paid to his credit during the half-year. He will, of course, decline to
submit to this charge, and request the manager to refund him 4s. 11d.
(three days’ interest upon £756 at 4 per cent. per annum).
With reference to the rate, the average Bank rate from 31st December
to 30th June works out at £3 17s. 1d. While his account was overdrawn,
however, the official minimum was at 4 the whole time, so the rate is a
fair one, but this question has already been discussed in the previous
chapter.
His banker owes him 1½ per cent. per annum upon his creditor balances,
which are multiplied by the days and extended in our second “total”
column. He has, therefore, to receive 1½ per cent. per annum upon
£3,891 for one day. Hence:--
(3,891 × 1½ × 1)/(100 × 365) = 3s. 2d.
As this is the sum debited in the pass-book, Mr. Jones’ mind is at rest
_à propos_ of the correctness of the figures; but it will probably
occur to him that the rate might be improved, for the fact that one
is borrowing at 4 and lending at 1½ is not conducive to harmonious
thinking.
Next, he checks the commission on his turn-over, which he makes £117.
He pays ⅛ per cent., of course, upon the amount of the cheques credited
in his pass-book during the half-year, and these come to the sum
aforesaid. Hence:--
(117 × 1)/(100 × 8) = 2s. 11d.
But his banker has charged him ⅛ per cent. on £617. His glance falls
upon the balance forward of £500 2s. 6d., and it at once occurs to him
that the manager has charged him thereupon, that, in short, a mere
banker’s opening entry has been included in his turn-over. Excited by
this discovery, Mr. Jones calls upon his banker, and points out to him,
with a touch of Celtic intensity, that he sees no earthly reason why
he should pay 12s. 7d. simply because the bank has made an entry of
its own in his pass-book. Moreover, with a keen eye for mathematics,
he clearly demonstrates that he has already paid commission upon
the various transactions which resulted in the said balance; so the
manager, adjusting his spectacles, and praying Mr. Jones to moderate
his language, allows that, in the hurry of business, a little mistake
has occurred. A customer, when checking his charges, should see that he
does not pay commission upon opening entries of this description, as,
needless to say, they are merely there in order to enable the banker
to balance his books, and bear no relation whatever to a client’s
turn-over, though they are sometimes added to it.
Just referring to the rate of commission, ⅛ per cent. we know, seems
too much, so Mr. Jones may be recommended to read Chapter VIII of this
book.
Lastly, we come to the entry “Postages, 5s.” The manager, during the
half-year, writes numerous letters to his customers, sends their
pass-books to them through the post, and so on; therefore, in order to
reduce his incidental expenses, he debits a few shillings to certain
easy-going clients before the books are ruled off, and so as to
prevent awkward questions being asked, he includes these small sums
with “charges.” Mr. Jones, who has probably not received half a dozen
letters from the bank during the half-year, will naturally refuse to
pay this imposition.
Should a customer not have made arrangements with the manager as to
the rates he is to pay, he would ask at what rates his account has
been charged, and then proceed to check the banker’s figures in the
manner indicated in these pages. Such an entry as “charges” has nothing
better than its extreme vagueness to recommend it, and the client,
when he finds this word in his pass-book, should, if he experience
any difficulty in checking the figures, return it to the manager with
the request that he will give him full particulars as to the rates of
interest and commission, and also tell him the amount of any additional
charge or charges, if there be any.
We can now make out a table of the amount Mr. Jones has to reclaim from
his banker:--
_Customer’s Calculations._ _Banker’s Calculations._
4 per cent. per annum 4 per cent. per annum
on £35,154 £3 17 1 on £37,422 4 2 0
⅛ per cent. on £117 0 2 11 ⅛ per cent. on £617 0 15 6
Postages, _nil_ 0 0 0 Postages 0 5 0
Balance to be refunded 1 2 6
-------- --------
£5 2 6 £5 2 6
======== ========
The commission on £617 is 15s. 5¹/₁₀d., but a banker would charge 15s.
6d. Mr. Jones, we can see, has been overcharged to the extent of £1 2s.
6d., and we may rest quite assured that he will not be easy in his mind
until he has recovered this sum from his banker.
Sometimes a customer, when ruling off his own books, draws a cheque
for, say, £600, and pays it to his credit at the bank. This would be
a cross entry. But does he understand that this sum will be included
in his turn-over, and that if he be charged ⅛ per cent. thereupon, he
pays 15s. to his banker for making a couple of entries in his ledger?
Again, if the manager charge him three days’ interest at 5 per cent.
per annum upon the sums paid to his credit, he will pay another 5s.
(about), and at this rate a cross entry of £600 would cost him 20s. The
luxury, it must occur to him, is expensive; and as this illustration is
not a figment of my imagination it is evident that everybody who keeps
a banking account should understand how to check a banker’s charges.
It seems an act of supererogation to point out that the average account
would contain very many more entries than the one under review, but
if the reader will carefully follow these instructions he should find
little difficulty in checking the charges in any bank-book. Where the
account has been overdrawn during the entire quarter or half-year the
first “total” column must be used. Our example is that of a mixed
account, and both columns are required; but should the account be
a creditor one, then the extensions are made in the second “total”
column, and the banker, of course, will allow the customer a rate.
When checking the interest of a loan account it is advisable to obtain
a separate pass-book from the banker, and not to take out the entries
from the current-account pass-book wherein the interest is debited.
Should it be found that the commission has been charged upon the amount
of the loan, the customer would ask for an explanation, and in checking
his interest he would proceed in exactly the same way as shown in our
example.
Again, we have seen that some customers arrange that their rate shall
be either Bank rate or ½ above it, as the case may be. Suppose that
the Bank rate on the 22nd April were raised from 3 to 3½ per cent.,
and that it had stood at 3 from 31st December. The customer, who has
agreed to pay his banker ½ above Bank rate, will then owe 3½ per cent.
per annum on the sum or sums he has borrowed from 31st December to
22nd April. Applying this hypothesis to the account under review, we
rule a line beneath the figures 6,160 in “total” column, and add up
the column, which comes to 30,600. From 31st December (exclusive) to
22nd April (inclusive) there are 112 days (see page 59), and, as the
figures in the days’ column give the same result, we know that they are
correct. The customer, then, owes his banker one day’s interest at 3½
per cent. per annum upon £30,600. At each change of the Bank rate this
process must be repeated; so instead of having one rule-of-three sum to
work out, as in our illustration, there may perhaps be four or five of
them.
Should the fortunate possessor of a large creditor account have
arranged with his banker that he is to receive 1½ per cent. _below_
Bank rate on his daily credit balances, then assuming that the balances
on our form were creditor, the banker would owe 1½ per cent. per annum
on £30,600 for one day. The customer, when calculating the amount
due to him, would proceed in the same manner as indicated above, and
he might remember that, in arriving at the number of days from one
change of the Bank rate to another, he excludes the day from which he
calculates and includes the date to which he calculates. The rest is
easy.