Bradford and Bingley e.savings account

Does anyone know if you can hold two of these accounts?

grumbler wrote:

The other example with £10000 is absolutely wrong.

Monthly interest for 5% AER is 1.05^(1/12)-1=0.4074%, but not 5%/12.
For both monthly and yearly interest you get £10000*0.4074%=£40.74 for one month.

It depends on the method used by the bank. Most banks as far as I'm aware use the traditional 'simple' method. There are a few (Egg I think are the main one) who use a daily compounding method, in which case I would agree with what you said. But usually with annual interest you get 5% pro rata for a month, ie 5%x1/12. You don't get the monthly interest rate of 4.89% paid on the annual interest account, you get paid the annual rate of 5%!

I agree with your monthly calculation at 1.05^(1/12)-1, and that is precisely the method I used.

In your example monthly interest is 4.89% gross p.a. and 4.89%/12 should be used instead of 5%/12

Well as that's precisely what I have used, I trust we are full agreement! I have not used 5%/12 for the monthly interest calculation, I have used 1.05^(1/12)-1.

£10000x4.89%/12=£40.75 (which 1p different to my figure because you've rounded the interest rate to 2 decimal places, whereas I've done it without rounding).

On the annual interest account, the interest is 5% and therefore the interest accrued for a month on the annual interest is 5%/12. The quoted interest rate is the contractual rate the bank has to pay. For the annual account they will always pay 5% on the balance for the period for which it is held (ie one month in my example). On the monthly account, they will always pay 4.89% on the balance for the period for which it is held (and credit this every month so it compounds).

We're obviously at cross-purposes here. I don't dispute for a minute that the AER of the monthly and annual accounts are the same, or that in B&B's case the annual rate is 5.25% and the monthly 5.13%. So I'm not sure why what you have posted 'proves' anything, as I agree entirely with the calculation of B&B's monthly rate at 5.13%. All I am am saying (and I thought this was blatently obvious, but clearly to some it isn't) is that if you have an annual account you are paid the annual rate of interest, and if you have the monthly account then you are paid the monthly rate of interest. The monthly rate is entirely irrelevant to someone having an annual account - you calculate their interest using the annual rate!

Accounts both having the same AER doesn't necessarily mean that you will end up receiving the same amount of interest! The AER calculation makes several assumptions, such as that the balance will stay the same over the year, that the rate stays the same over the year, that the monthly interest compounds gross and that the annual interest would be paid 12 months after the initial deposit. If any of those don't happen, then the annual and monthly interest calculations will produce different results, even though the AERs are the same.

If the annual rate is 5.25% and you leave the money in an annual paying account for just 1 month, then you earn 5.25%/12. With the monthly account you would get 5.13%/12 in a single month. Over 12 months, those cumulative 5.13% interest payments would compound so you end up with equivilent to 5.25% after 12 months. But if the period the money is in the account is less than 12 months (ie one month in my example) then it will not compound to reach 5.25%.

If you don't believe me on how annual interest is calculated, then try the following link to the British Bankers Association Code of Conduct for Advertisers. Section 8 says:

"Where contractual rates are quoted on the basis of other than a 12 month period, this must be clearly stated. Where an interest rate is calculated on a basis other than actual/365, the basis should be stated and the AER should nonetheless be calculated on an actual/365 basis.

Actual/365' means that interest is calculated by taking the balance multiplied by the annual interest rate divided by 100, multiplied by the number of calendar days that the balance is held divided by 365 in a normal year or by 365 or 366 days in a leap year."

In other words this is the normal method. If any other method of calculation is used, then the advert specifically needs to say so.