Customizing Index Interest Rates and Tax Rates

There are three different types of index and tax rates you can set up for managing your loan and deposit products:

• Interest rates
• Value-added tax rates
• Withholding tax rates

These values are configured under Administration > Financial Setup > Rates. The process of creating, updating, editing, and deleting index rates for each of these is the same.

Interest rate

An index interest rate is an interest rate determined periodically by an external entity such as a central bank. It's a common practice in some organizations to fix their internal interest rate to an index interest rate.

For more information on managing interest rates for your products and where index interest rates can be applied, see Interest Calculation Methods in Loans and Changing the interest rate.

Value-added tax

Many countries require organizations that offer loan accounts to pay taxes on the interest, fees, or penalty income generated on those accounts. These taxes are generally called value-added taxes (VAT), because they are collected on revenues.

For more information on how VAT is applied when setting up loan products, see Setting Up New Loan Products - Taxes.

Withholding tax

It is a regulatory requirement in many countries that organizations offering deposit accounts have to pay taxes on the interest generated by those accounts and paid to clients. These are generally called withholding taxes because they are deducted from the interest paid to the client.

For more information about how withholding taxes are applied when setting up deposit products, see Setting Up New Deposit Products.

Creating a new index rate

To create a new index rate you first have to define the rate source and then you can specify the rate value(s).

To create a new index rate:

1. On the main menu, go to Administration > Financial Setup > Rates.
2. Next to the Rate Source dropdown, select the Add icon .
3. Enter a Name (required), ID (optional), and Notes (optional).
4. Using the Type dropdown, select either Interest Rate, Value Added Tax, or Withholding Tax depending on the type of rate you're adding.
5. Select Save Changes.
6. Select either Add Index Interest Rate, Add Value Added Tax, or Add Withholding Tax depending on the type of rate you're adding.
7. Enter the New rate value and the Valid From date.
8. Select Save Changes.

Updating index rates with new values

When the index rate updates, you will need to update the value in your system and define from what date onwards you want to use the new value.

To update an index rate with a new value:

1. On the main menu, go to Administration > Financial Setup > Rates.
2. Next to the Rate Source dropdown, select the rate source for which you want to update the index rate value.
3. Select either Add Index Interest Rate, Add Value Added Tax, or Add Withholding Tax depending on the type of rate you're updating.
4. Enter the New rate value and the Valid From date.
5. Select Save Changes.

The default behaviour is that the schedule is not updated until the validation date of new index rate.

Automatically updating repayment schedules when interest rates change

In certain countries banks are required to send new repayment schedules when the interest rate is changed. To facilitate this, we have implemented automatic updates for interest rate changes.

Whenever a change in the interest rate occurs, the schedules of affected accounts will be recalculated at the next end of day job - without waiting for the validFrom date of the new interest rate. On the next day you will be able to see the updated repayment schedules of the accounts and send the new details to your clients.

Editing index rates

To edit the rate source of the index rate:

1. In the Rate Source dropdown, select the rate source you want to edit.
2. Select the Edit icon .
3. Make any changes in the Edit Source dialog.
4. Select Save Changes.

To edit one of the index rate values for a particular rate source:

1. In the Rate Source dropdown, select the appropriate rate source.
2. In the list of index rate values, find the value you want to edit and select Actions > Edit.
3. Make any changes in the Store Rate dialog.
4. Select Save Changes.

Deleting index rates

To delete the rate source of an index rate and therefore all of its accompanying values:

1. In the Rate Source dropdown, select the rate source you want to delete.
2. Select the Delete icon .
3. In the Delete dialog, select Delete.

To delete one of the index rate values for a particular rate source:

1. In the Rate Source dropdown, select the appropriate rate source.
2. In the list of index rate values, find the value you want to edit and select Actions > Delete.
3. In the Confirm Deletion dialog, select Delete.

You will receive a warning if you attempt to delete rate sources for index rates that are currently in use.