APR vs AER Vs Compound interest

deano27_2

Hi, can anyone provide a link or idiots guide to this...

How is my interest calculated on my halifax account. Is the average amount held in the account over the month x the interest rate then divided by 12???

So if I kept exactly £ 1000 throughout the month at 5.8% would I get £4.80 for that month..??

What is compounded is that just the interest on the value and the interest?

Thanks in advance....:beer:

YorkshireBoy

Which account? I'm not aware of any of their current accounts paying 5.8%.

Milarky

If interest is paid monthly then the 'gross' quoted figure (not the 'AER' or anything else) is what you divide by 12.

A good current example is the Lloyds current account promotional rate. The standard account pays 4% [AER] - which is 3.93% 'gross'. They are currently paying '6%' [AER] through the addition of a '2%' percent bonus.

But, monthly, Lloyds are paying 5.84% [divided by 12] not '6%'. So that '2%' is only 1.91% [divided by 12] added to the standard account's gross rate.

Milarky

Halifax has a current account that pays '5% Gross' - which means you will get 5%/12 each month. The corresponding AER (which they are obliged to quote) is 5.12 'AER'

I]YB, shame on you for not nit picking![/I

If the OP is talking about the promotional rate Websaver from Halifax however - a non current account - that, AFAIK, they only pay interest on the anniversary. That interest is therefore 'simple' (not compounded through the year) and - assuming it is fixed you will get exactly half the amount of interest from £1 paid in and left six months from now as you will get from £1 paid in and left in today.

YorkshireBoy

Milarky wrote: »

Halifax has a current account that pays '5% Gross' - which means you will get 5%/12 each month.

I think it's 5% / 365 x n each month.

where n = number of days in the statement period.

I]YB, shame on you for not nit picking![/I

Didn't want to let you down!