BM bond - interest monthly or annually?

barbarafloyd

Hiya,

I would like to invest in the Birmingham Midshires 1 year internet fixed rate bond, but should I opt for interest to be paid monthly or annually?
Monthly - gross pa: 6.89%, Net: 5.51% and AER: 7.11%
Annually -gross/AER: 7.11%, Net: 5.69%
If AER is the same, does this mean I will get the same return regardless of which methofd I pick? And if so, why offer both options?

thanks for any help

exel1966

Yes, as long as you leave the interest in the same account if paid monthly then you will achieve the same AER. In effect you get interest on interest, known as compound interest. There will be a difference of a few pennies only.
The bonus of taking monthly is that you see the interest accrue and can spot problems earlier if they arise.

EDIT : If you advise the amount to be saved it will be possible for someone here to give you very accurate figures in respect of the interest you'll gain dependent upon the option taken.

DeepSporran

Some people may need to receive the interest monthly, to use for spending. They would opt for monthly interest, paid into an external linked bank account.

tiptoe_mouse

You can have interest paid into the bond, or into a linked account. If you opt for the latter, you will receive less interest with the monthly option, as you won't be getting interest on your interest. If you leave it to accrue in the bond, and you are a non-taxpayer, then you're right - you will get exactly the same interest. I believe that if you pay tax you're slightly better off with the annual option, to the tune of 47p per £100 invested. That's if I've done my sums correctly.

HTH

tiptoe

ad44downey

tiptoe_mouse wrote: »

I believe that if you pay tax you're slightly better off with the annual option, to the tune of 47p per £100 invested. That's if I've done my sums correctly.

e

That would be a whopping 0.47% advantage in getting annual interest over monthly interest. That's massive and just can't be right.

Paul_Herring

tiptoe_mouse wrote: »

I believe that if you pay tax you're slightly better off with the annual option, to the tune of 47p per £100 invested.

I think you may have made a mistake somewere. For an account paying 6% AER, it's only around 61p per £1000 i.e. of not much consequence to most people - you appear to be out by a factor of 10 somewhere.

davidlee

BarbaraFloyd wrote: »

I would like to invest in the Birmingham Midshires 1 year internet fixed rate bond, but should I opt for interest to be paid monthly or annually?
Monthly - gross pa: 6.89%, Net: 5.51% and AER: 7.11%
Annually -gross/AER: 7.11%, Net: 5.69%
If AER is the same, does this mean I will get the same return regardless of which methofd I pick? And if so, why offer both options?

The return differ depending upon the option and of corse the return is high in case of annually.

tiptoe_mouse

I thought it seemed high! I seem to have copied down the net rate wrongly as 5.1% instead of 5.51% Doh! I now get the difference to be 4p per £100, but I'm open to other bids!

tiptoe

tiptoe_mouse

Paul_Herring wrote: »

I think you may have made a mistake somewere. For an account paying 6% AER, it's only around 61p per £1000 i.e. of not much consequence to most people - you appear to be out by a factor of 10 somewhere.

Doesn't the spreadsheet show 27p per £1000? This would fit in better with my recalculation of 4p per £100.

tiptoe

redcar_2

Be careful with this though I seem to remember somewhere it says that interest needs to be paid away from the account if a monthly version so you wouldn't get the compound rate. I'm sure someone on here was complaining about it being a bit misleading. In this case if you want the bext rate pick annual interest.

Paul_Herring

tiptoe_mouse wrote: »

Doesn't the spreadsheet show 27p per £1000? This would fit in better with my recalculation of 4p per £100.

tiptoe

Oops - yes, indeed. I can't read my own spreadsheet! (The 61p figure is he difference if you withdrew '6 months in' for another thread I used this on.)

My apologies.