Interest Rate Vs Interest Actually Received In 2019

csmith77 | Feb 2, 2020 | 40 posts since 2016

I have a Southwest Airlines FCU LUV Rewards Checking account which advertises the interest rate to be 4% APY on a max of $25K if you meet all the qualifications for the month. I have kept a stable $25K and met the qualifications all year and I received my 1099 and it showed I only received $901.75. Of course we all can figure 4% interest on 25K is $1000. The only thing new this year is they added to the qualifications that a transaction has to be over $5 to count. This means you have spend $75 to meet the qualifications. but it is immediately replenished by the $83.33 (ave) interest each month. Has anyone run into this question recently? Any ideas are appreciated.

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Answers

pgroove_fan | Feb 2, 2020 | 168 posts since 2019

It looks to me like you are missing one whole month's interest. Check your statements to be sure that your transactions actually qualified for the premium interest every month. If you don't find a missing month in that way, take a look at when the Dec 2018 and Dec 2019 interest actually posted. If Dec 2018 posted during 2018, but Dec 2019 was late and posted on Jan 2 2020, you'd have only 11 payments for the year, with likely 13 coming in 2020.

CuriousDave | Feb 4, 2020 | 233 posts since 2018

Some financial institutions do not post interest monthly but on some other basis such as quarterly. I had that experience last year with one institution where I had invested in November 2018 but all the interest from the initial date of investment through the end of 2018 posted to the account only in February of the following year. One way you can check how often the institution posts interest is by searching your account using their time range sorting feature and looking at the interest history on a monthly basis. That was how I discovered that for the 2018 year no interest at all was posted, and that was for the 2018 tax Form 1099-INT as well, so the interest earned through the end of 2018 was not taxed until 2019.

me1004 | Feb 4, 2020 | 1,379 posts since 2010

I suspect the difference is the difference between rate and APY.

The only amount that actually earned 4% between Jan. 1 and Dec. 31 is the amount that was in and remained in the account from Jan. 1. APY is simply a projection of what you would get if that money earned the rate and any compounding for a full 12 months, not if you had the account open for 12 months.

Every time you spent, money came out, and it stayed out until whatever amount of interest was posted. So, your interest and compounding would not bring the the 4% APY by Dec. 31.

You can see the APY more accurately n a CD, because you do not have money coming out all the time, with interest being posted only later, so a period of time with the amount lower. As you say, the interest would bring the balance back up to around full level; but until it did, there was a period when less money was in the account.

csmith77 | Feb 6, 2020 | 40 posts since 2016

While I have not heard from SWACU about this issue, I did review all my 2019 interest payments and as pgroove_fan suggested I am missing a whole month on interest in the 1099 total. Thanks for the responses. Chuck

csmith77 | Feb 6, 2020 | 40 posts since 2016

The answer was the 1099 was in error. I received the following email from SWAFCU today:

Dear Member,
We have discovered an error while processing our 1099-INT forms for 2019. We have corrected the calculations and will be issuing new 1099-INT forms that will include the corrected amount. Please note that all 1099-INT forms sent to IRS for reporting, are not due until March. Therefore, the IRS will receive the most up to date 1099-INT form. We apologize for any inconvenience.

For further questions or concerns, please contact Member Services at 1-800-262-5325.

Thank you,
SWACU Team

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