Yorkshire bank bonsd. Interest opt in. Annually or Maturity?

geckofabulous · 6 November 2011 at 6:55PM

There explantions are <i>
Interest options
Interest Capitalised and Paid at Maturity
Interest will be credited to the Account on the Maturity Date (unless you advise us differently) or when the Account is closed, if earlier. Interest will start accruing on the Deposit from the Commencement Date and will be calculated on a daily basis, up to and including the last Business Day before the Maturity Date on the full credit balance which has been Cleared for Use on the Account.
Annually Capitalised InterestInterest will be credited to the Account on each anniversary of the Commencement Date and on the Maturity Date (unless you advise us differently) or when the Account is closed. if earlier. Interest will start accruing on the Deposit from the Commencement Date and will be calculated on a daily basis, up to and including the last Business Day before the anniversary of the Commencement Date on the full balance which has been Cleared for Use of the Account.</i>

I can't make head nor tail of their explanations. In short, which one will produce the most interest at the end of the term?

opinions4u · 6 November 2011 at 7:02PM

It depends on your tax liability.

Annual gives you a tax bill each year.

Maturity gives you a tax bill at the end.

If you're likely to move in to a higher tax band during the term, choose annual. If you're likely to be in a lower tax band (e.g. through retirement) choose at maturity.

If you think your tax situation will remain the same, and this involves a bit of guesswork, then I'd suggest annual is better as I think income tax will rise sooner or later. But I could be wrong!

But if your tax liability remains the same and there is no change to tax rates, it's as broad as it's long.

Rhymsta · 6 December 2011 at 7:58PM

Still confused about the way the interest rates are quoted...

Earlier in this thread someone said that interest could be added to the account each year but I wasn't given that option.

It's the 5 years Capitalisation at Maturity which confuses me because it says the rate is 5.16% Gross, 4.70% AER and 4.13% NET.

Others have said that this is misleading but I can't find an explanation of the maths.

opinions4u · 7 December 2011 at 12:00AM

5.16% gross = 25.80% over 5 years without any compounding. The net rate is calculated off this ... 5.16% x 20% = 1.03% deducted for tax. 5.16% minus 1.03% = 4.13% net.

If the account paid 4.70% gross with interest compounding each year, the rate would be 4.70% AER.

Rhymsta · 7 December 2011 at 10:13PM

Thanks for that opinions4u...

So am I right in thinking that I was misled when I opened th account.
I was told that what I would receive would be the same if I chose annual interest or paid at maturity. I was told it was just a question of whether it suited me to receive all the interest in one tax year. When I asked if I could have the interest added back to the account each year to receive compounding I was told that I could not and I needed to set up a current account to have it paid into. The way it was presented to me I had the option of leaving the interest in the account, as the adviser put it, "If you don't need it", but I wouldn't receive any more money for doing so.

Yorkshire bank bonsd. Interest opt in. Annually or Maturity?

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