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Monthly or Annual Interest ???
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# 1
idv
Old 31-03-2005, 10:52 AM
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Default Monthly or Annual Interest ???

Hi

I plan to open an instant access savings account, however is it better to have interest paid monthly rather than annually on the savings in this account to get the best returns especially if you intend to remove some of the money in the savings account over the course of the year.

I have seen that ING Direct offer 5% interest and pay monthly interest, are there any other good savings accounts that meets my requirements. The A&L savings is set to 5.35% but pays interest annually.

I appreciate any advice/guidance that can be given.

TIA
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# 2
blinko
Old 31-03-2005, 11:13 AM
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annually is usually a higher rate thank monthly interest even with the compouning in this case i believe the alliance leicester is better the bradford and bingley is also a good monthly savings at 5.13%
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# 3
grumbler
Old 31-03-2005, 11:37 AM
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If you compare AERs (Annual Equivalent Rates) there is no difference for you whether interest is added monthly or annually. If AERs are the same you will get the same income. If account pays interest annually, the interest is still calculated on daily basis (with very rare exceptions). If you close such account before the year-end you still get the full interest earned. The only difference could be if you want to withdraw and spend income during a year, but in this case you cannot predict total yearly interest by using AER because AER assumes adding interests to savings (compounding).
This problem was also discussed in this THREAD.

A&L is better than ING (I take only interest rate into account) unless you have more than 25K.
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# 4
ED
Old 31-03-2005, 1:44 PM
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idv - If you decide to join Alliance + Leicester in order to open an Online Saver account, you can earn monthly interest via A+L's current account.

5.85% gross interest can be earned by monthly deposits of any amount between 10 - 1,000) in Derbyshire Bdg Society's Regular Saver account. Interest is paid annually, but it can be enjoyable for customers to calculate, each month, the amount of interest likely to have been gained at that point in time on their swelling balance. One penalty-free withdrawal is allowed each year, so effectively instant access.

Hope this helps.
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# 5
Milarky
Old 31-03-2005, 1:45 PM
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Default One for the nerds

The difference between a possible rate compounded and the same rate paid once a year is usually practically nil.

Eg 5% twelve times a year at [5/12]% = (1.004166)^12 = 5.116%

5% every day [365 times a year] at [5/365] = (1.000137)^365 = 5.126%

There is a limit to infinitely compounding the same 'simple' of interest rate over shorter and shorter intervals which is: '(e^I) - 1' - where 'e' is the base of the natural logarthim - 2.71828.. and 'I' is the interest rate expressed as a decimal numder - thus 5% becomes '0.05'

Thus (2.718281828^0.05) - 1 = 0.051271096 [5.127%]
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# 6
simple321
Old 13-04-2007, 7:49 PM
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So if I had an ISA which paid annually could I pay into a savings account which paid monthly and then put the money in the ISA just before the annual interest was about to be paid and so get two lots of interest for the year?
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# 7
jem16
Old 13-04-2007, 9:19 PM
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No you could not. The ISA(just like any savings account) pays interest based on how long the money is there for. If you only had the £3k in for one day, one day's interest is all you would receive.
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# 8
simple321
Old 13-04-2007, 9:51 PM
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Cheers, thanks for clarifying that for me
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# 9
MrChips
Old 13-04-2007, 11:01 PM
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If you are a tax payer, you will earn a little more interest if it is paid annually.
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# 10
david sills
Old 21-07-2008, 5:59 PM
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Default ISA's for income

I have several isa's but at some stage in the near future I would like to transfer the savings into something which will provide a monthly income in retirment...........is there such a thing as a monthly income cash isa?
David Sills
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# 11
londoner01
Old 18-01-2012, 10:40 AM
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Similar problem, still none the wiser.

I'm considering opening an easy access saver to drip-feed another savings account.
This easy access saver has the option of having my interest paid in annually, or monthly.

Monthly interest is at 3,06% AER, and annual interest is at 3,10% AER. If you want more info, the account is a Santander esaver Issue 4 (newbie can't link apparently).

I intend to deposit a bulk sum and have a net monthly "exit" from the account of about 4% of the bulk sum. I only plan to keep the account for just over a year because the bonus interest then drops.

Any Maths whizz that can show me some equation goodness? I would probably understand them if someone showed them to me but am unable to come up with them myself.

By the way I am a taxpayer at 20% if that makes a difference.

Thanks in advance and looking forward to some sexy Maths!
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# 12
Linton
Old 18-01-2012, 11:02 AM
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Quote:
Originally Posted by david sills View Post
I have several isa's but at some stage in the near future I would like to transfer the savings into something which will provide a monthly income in retirment...........is there such a thing as a monthly income cash isa?
David Sills
You can get monthly income from a cash ISA, but I would suggest that it is a very poor way to finance retirement. The interest rates are relatively low and you have no protection from inflation whatsoever. Your capital remains constant and therefore steadily devalues in real terms.

Also of course, you can only put 5K/year into a cash ISA.

Other and better (IMHO) options include annuities, dividend paying shares and income funds all of which should provide a better return than a cash ISA.
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# 13
CLAPTON
Old 18-01-2012, 11:10 AM
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Quote:
Originally Posted by londoner01 View Post
Similar problem, still none the wiser.

I'm considering opening an easy access saver to drip-feed another savings account.
This easy access saver has the option of having my interest paid in annually, or monthly.

Monthly interest is at 3,06% AER, and annual interest is at 3,10% AER. If you want more info, the account is a Santander esaver Issue 4 (newbie can't link apparently).

I intend to deposit a bulk sum and have a net monthly "exit" from the account of about 4% of the bulk sum. I only plan to keep the account for just over a year because the bonus interest then drops.

Any Maths whizz that can show me some equation goodness? I would probably understand them if someone showed them to me but am unable to come up with them myself.

By the way I am a taxpayer at 20% if that makes a difference.

Thanks in advance and looking forward to some sexy Maths!

better to start your own thread

however an AER of 3.10% is better than an AER of 3.06% all other things being equal

on a 100 pounds saved for a year, you would be better off by 0.06 gross or 0.048 after tax
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# 14
psychic teabag
Old 18-01-2012, 11:11 AM
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Hmm - that's odd. That account says the AER is 3.10% for annual interest. For monthly, it says gross pa / AER = 3.06%. For monthly interest, gross pa does not equal AER. So I think what it probably means is the gross p.a. is 3.06% and the AER is 3.10%.

If the money is in for a whole year, the AER tells you the effective rate you're going to get - the compounding of the monthly interest ups the effective rate slightly. So if both have an AER of 3.10%, that's what you get.

But if you have the money in for less than a year, I reckon annual is slightly better, assuming both have the same AER. If you picture the balance in the account as a graph over time, the annual interest is a straight line over the year, but the monthly interest curves upwards, intersecting after a year. So between anniveraries, the line for annual interest is slightly above that of the monthly interest. (Most noticable at the start - after 1 month, the monthly account has had no time to compound to start making up the difference.)

I don't think the tax makes a difference. Monthly interest takes off the tax slightly sooner, but the taxable bit grows exponentially too - all the maths is linear so you can think of splitting the money into your bit and the taxman's bit, and they grow independently within the account.
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# 15
Anddos
Old 18-01-2012, 5:00 PM
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I have seen that ING Direct offer 5% interest

sorry where does it say that?, i see they only have 3%
http://www.ingdirect.co.uk/savings/
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# 16
noh
Old 18-01-2012, 5:16 PM
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Quote:
Originally Posted by Anddos View Post
I have seen that ING Direct offer 5% interest

sorry where does it say that?, i see they only have 3%
http://www.ingdirect.co.uk/savings/
Look at the date of the post, 31-03-2005, nearly seven years ago.
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