AA Interest Explained

The single most common source of “the interest is wrong” support calls is not a bug. It is a misconfiguration. Something in the product hierarchy is set to the wrong value, and the system is doing exactly what it was told to do, which is unfortunately not what anyone wanted.

Understanding how interest works in AA — properly, not just at the level of “there is an interest rate field somewhere” — is the difference between diagnosing these calls in ten minutes and spending two hours eliminating possibilities.

What the Interest Property Class actually is

In AA, interest is not a setting. It is a Property Class — a category of behaviour that a product can include. If a product has an Interest Property Class, it can accrue interest. If it does not, it cannot.

Within that Property Class, you define one or more Properties — each Property representing a specific type of interest. A mortgage product might have:

• A principal interest Property — the base rate the customer pays
• A penalty interest Property — the higher rate that kicks in when they miss a payment
• A commission Property — a fee expressed as an interest-style calculation

These are all separate Properties within the same Interest Property Class. They are configured separately, accrue separately, and can have different rates, different calculation methods, and different billing frequencies. The fact that they are all called “interest” in conversation does not mean they are the same thing in the system.

How interest accrues

By default, interest accrues on the total balance of the arrangement. Every day during COB, the system calculates the interest due for that day and adds it to the accrual. At the end of the period — or whenever the payment schedule dictates — the accrued amount is made due to the customer.

This is the standard model and it works cleanly for most products. But there is a variant — Accrual by Bills — that changes the calculation fundamentally.

Accrual by Bills

When a product is configured with Accrual by Bills, interest is not accrued on the total balance. It is accrued and tracked separately against each individual bill (each scheduled payment). This matters most for penalty interest — a bank might want to apply penalty at a per-bill level so that each overdue payment carries its own penalty calculation, independent of the others.

The difference becomes visible when a customer has multiple overdue bills and the bank wants to know exactly how much penalty each one has attracted. With standard accrual you have one total. With Accrual by Bills you have a breakdown per bill.

The support call that comes from this: “the penalty interest figure does not match what we expected.” The answer is almost always about whether Accrual by Bills is configured, and whether the rate being applied is on the total or per bill.

How interest gets from accrual to the customer

Accruing interest and presenting it to the customer are two different steps. The bridge between them is the Payment Schedule Property Class.

The Payment Schedule defines when amounts are made due and how. For interest, the Method attribute on the payment schedule determines what happens:

• DUE — the accrued interest is billed to the customer at the scheduled frequency
• CAPITALISE — the accrued interest is added to the principal balance instead of billed
• PAY — the interest is paid out to the customer (relevant for deposit products)
• MAINTAIN — the amount is tracked but not automatically billed or capitalised

A mortgage that capitalises interest instead of billing it, or a savings account that pays interest instead of crediting it to a statement balance — these distinctions are entirely controlled by the Payment Schedule configuration. If a product is capitalising when it should be billing, the answer is here, not in the Interest Property itself.

Payment frequency

The frequency at which interest is billed is also defined in the Payment Schedule using T24's standard recurring frequency notation. Monthly on the last day of the month: M 01 31. Quarterly: M 03 31. Monthly on the 10th: M 01 10. Weekly: W.

When a customer complains that their interest billing date is wrong, the Payment Schedule is the first place to check.

Multiple interest properties on one product

This is the point that causes the most confusion for people who are new to AA.

A single product can have multiple Interest Properties — and they are all active simultaneously. A lending product might have both a principal interest property and an overdue penalty interest property defined. During normal operation, only the principal interest accrues. When the customer misses a payment, the overdue property activates and the penalty begins to accrue on top of the principal interest.

Each property has its own rate, its own accrual basis, its own payment schedule method. They are independent. Getting one right does not mean the other is right.

The support implication: when the interest figure is wrong, you need to establish which interest property is producing the wrong number before you can fix anything. “The interest is wrong” is not enough. “The penalty interest is accruing when it should not be” is a starting point.

Rates: product level vs arrangement level

The interest rate can be set at the product level as a default, or overridden at the arrangement level for a specific customer. Whether that override is allowed is controlled by scope — the same concept from the AA introduction article.

If the product condition has been configured to lock the rate, no override is possible regardless of what a banker enters at the arrangement level. If the rate is negotiable, the arrangement condition carries the agreed rate and takes precedence over the product default.

When a specific customer's interest rate is wrong and every other customer on the same product is fine, the issue is in the arrangement condition. When every customer on the same product has the wrong rate, the issue is in the product condition — and a fix requires Proof and Publish before it takes effect.

What the COB run is actually doing

Every night during COB, AA processes interest accruals for active arrangements. For each arrangement with an interest property, the system calculates the day's interest, updates the accrual balance, and checks whether a billing event is due.

This sounds straightforward. In practice, a COB that includes millions of arrangements, some with multiple interest properties, some with Accrual by Bills, some with forward-dated rate changes, can produce a very large number of individual calculations. When performance issues arise, the interest accrual step is often involved.

One optimisation available in AA is processing accruals as a method callrather than through the full Activity template. When configured this way, the system calculates and posts the accrual at runtime without creating an AA.ARRANGEMENT.ACTIVITY record. Faster, but less visible — there is no activity record to inspect after the fact. Teams that rely on activity records for audit or reconciliation purposes need to understand this trade-off before enabling it.

The practical checklist for wrong interest

When an interest figure is incorrect, work through this in order before raising anything internally:

1. Identify which interest property is producing the wrong figure — principal, penalty, or other.
2. Check the arrangement condition for that property. Is there a negotiated rate override?
3. Check the product condition. What is the default rate, and has the product been published with a recent change?
4. Check the Payment Schedule. Is the method DUE, CAPITALISE, or PAY? Is the frequency correct?
5. If penalty interest is involved — check whether Accrual by Bills is configured and whether the right bills are being flagged as overdue.
6. Check the effective dates on the conditions. A rate change that has been designed but not yet published will not affect current arrangements.

The wrong interest number is almost always traceable to one of these six points. The reason it takes so long for most teams is that they jump to the rate field and miss the payment schedule, or check the product and miss the arrangement override.