Time Value Money (TVM) is a principal relating to the changing value of money over time. Money today is worth more than the same amount of money in the future due to its potential earning power (interest, investments, etc.).

So the bank gives a refund and compensates you for the “time value” of money…

They’re essentially offering a calculation that reflects the opportunity cost of the money you lost. This could be potential return or interest you could have earned or saved had you had access to the money sooner.

However, how can they know what you’re doing with the money? If they offer you compensation, say at 5%, does it cover the actual financial loss you experience?

For example, those funds could have paid down a credit card debt with a 20% interest rate. So the bank’s compensation isn’t close to compensating you for the lost opportunity of paying down higher-interest debt.

Potential Issues with the Bank’s Assumption

Compensating you at 5%, compared to reducing the credit card charging 20%, shows the refund plus TVM falls short.

You’re not getting full compensation for the financial impact you suffer. Clearly the refund doesn’t cover the actual opportunity loss.

The real cost (or loss) in this case is the opportunity cost. If the funds were sitting in an account earning only 5% while you’re paying 20% interest on your credit card, the difference (15%) is the true cost of the delay.

So the bank’s 5% TVM isn’t a fair reflection because it doesn’t take into account your personal financial situation.

This could be considered an unjust enrichment for the bank… They’re essentially paying you less than what you could have saved or earned had the funds been available.

Time Value Money Remedies

If refund plus TVM adjustment doesn’t compensate you for the higher cost of the credit card debt, there’s several options:

  • Challenge the Bank’s TVM Calculation. Tell them the 5% interest rate doesnt compensate you for the true financial loss. And request they recalculate the compensation using a more appropriate rate… a TVM rate that reflects the actual opportunity cost you face.
  • Demand Full Compensation for the Loss: You can formally request the bank compensates you for the full amount of interest savings you would’ve had, by paying down the debt with the refunded funds. This includes the 15% difference you would’ve saved by reducing your credit card balance.

Time Value Money Compensation

So there’s a mismatch between the assumed compensation rate (5%) and the actual financial loss you incurred (20% credit card interest). This creates an inequitable situation where the bank’s under-compensating you for the full harm caused by their error.

By challenging this and seeking proper restitution, you can seek fair compensation for the lost opportunity to reduce your high-interest debt.

But at what cost to you?

Time and effort, and sweat equity for a few hundred bucks?

Which is how the banks get away with short-changing their customers, and making huge profits for their share-holders…