RBC Royal Bank is sending refunds totalling $25 million to 250,000 of its GIC clients to correct an error which confused simple with compound interest.

Nearly one-third of the bank’s customers will receive refunds of more than $50.

“We regret the inconvenience this situation has caused and would like to assure clients that we have resolved this issue,” said Jonathan Hartman, the bank’s vice president of investment products, in a release.

Clients who own the GICs in question will be notified by letter starting on Dec. 20, in time to adjust their income tax slips for 2005. They will be sent a cheque for the differential between simple and compound interest, with back interest.

RBC said the problem occurred because the system that the bank uses to purchase and renew the affected GICs applied the wrong kind of interest.

The affected clients chose to have interest paid at maturity for some GICs with terms of more than one year. Clients who held GICs in registered plans are not affected.