I’ve been following the Dreamhost saga mostly from curiosity. I would have been liable to an accidental site shut-down, but don’t trust anyone with things like automatic billing.
Some of the comments are frightening. One set scare me because they seem to believe that Dreamhost was trying to seriously scam its customers by doing this. Actually, they had an imperfect program which had worked well for years but was vulnerable to typos. Typos that we all make around the new year, I might add!
The second set is even scarier because their posts demonstrate a profound undereducation about pretty important subjects. In particular, one on bank interest caught my eye:
What would be the daily interest on an account holding, say, 2.5 million? [the amount they overcharged]
2.5 million x 2% interest = $50,000 per day
Its been 4 days almost, so thats around $200,000 in interest (free money), if its a 2% rate, which is around average. PLENTY of money to give back to those who have overdraft fees and bounced check fees.
All I can say is “Where do I sign up?” Seriously, 2% free money every day? Apparently it’s not compounded, but who cares. If I put in $1000, I’ll have $20 new dollars a day. Dude, if I put in $10,000 I’d never have to work again!
They must find bank statements pretty confusing.
But consider credit cards–there you’re paying 13% interest—so for every day I have a $100 balance, I owe another $13. That would swamp and kill me in no time.
I don’t think the user is necessarily dumb, just not educated about how interest and the banking industry works. And lack of education here can be crippling.
Almost all bank interest is APY—annual percentage yield. My money at ING will earn about 4% each year. So if I had $1000 in there all year, I’d get $40 for that. And if I put in another $1000 6 months into the year, I’d get $20 for that ( 6 months/12 months = .5 .04 * .5 = .02 = 2%). If I put in another $1000 only for the last month, I’d get $3.33. That’s the amount I would have earned on the money by December.
Now banks do periodically compound it, so maybe 1/4 of the way through the year I’d get $10 for that first $1000 and then in the next quarter I’d get interest paid on $1010.
But the principle is pretty simple—everything is based on the year.
In the same way, credit card interest is APR—annual percentage rate. Your company decides when to apply the interest. Maybe if you’re at 12% you get 1% added on each month…and that 1% will be part of the next month’s bill, unless you pay it down. So if your balance is $1000, you’ll get $10 tacked on. And if you pay down $25, the next month, you’ll still have a balance of $985 ($1000+10-25=985) and get $9.85 tacked on your next statement. And that’s if you didn’t add anything.
They might compound more or less often depending on what they’re after. Weekly compounding might bring in more money, for instance. Unfortunately, I’m too sleepy to calculate it.
I’m writing this late, so please let me know if I messed up any calculations.