Monthly or Annual Interest?

isofa

JimmyTheWig wrote: »

Not all accounts have the option of monthly interest.
Not all accounts that offer monthly interest give the same AER for monthly and annual.

I've never come across an account offering both annual and monthly interest who's monthly doesn't equal the same for the annual rate AER. Otherwise no one in their right mind would pick the monthly option.

E.g. KE is 6.36% monthly, which compounds to 6.55% AER, directly matching the 6.55% annual rate on off on that account.

However if there are accounts that swindle you on monthly interest, not matching the annual rate AER - avoid like the plague!

isofa

Darth_Calculus wrote: »

I think CPI/RPI is irrelevent, as the ONLY inflation measure that is important is the inflation rate on what you are going to spend the money on, namely House Price Inflation.

Going back to the original poster's question, does anyone know how the FSCS works on accrued interest? For example, you put £10k in an annual paying account, and 11 months down the line the bank goes bust, would you only get your £10k, or would you also get the accrued interest? Contrast this with monthly interest, you'd have 11 months interest as part of the account balance at the time that the bank went bust, which presumably you'd get back through the FSCS. Yes its unlikely, but more than anything, I am quite interested to know the answer! :rolleyes:

Interest is calculated daily on all accounts, so it'd be unlikely you wouldn't get your accrued interest at the point of the bank failing. Just because a bank shows the interest on an annual account once a year, doesn't mean it isn't calculated daily. But seeing as no one has lost money in a personal account in the UK for 100+% I find this risk to be negligible - but everyone has their own opinion. :beer:

The non house price inflation rate can be worth noting, as if you aren't going to spend all what you've deposited on a new house, the remainder has been devalued by inflation if you've been taking out the interest.

JimmyTheWig

isofa wrote: »

I've never come across an account offering both annual and monthly interest who's monthly doesn't equal the same for the annual rate AER. Otherwise no one in their right mind would pick the monthly option.

I'm sure egg had a lower AER for monthly interest than annual interest.
And I have to admit that we have gone for the monthly interest option at one point.

We use egg savings accounts to "piggybank" money - e.g. save a little bit each month for a coming holiday. The interest earned is small whatever the rate would be as the time and amounts are small. We don't really do it for the interest, just to keep track of it. Any interest earned is a bonus - and it's nice to see that bonus building up. Otherwise we might get the interest earned while saving for a holiday months after the holiday which would really confuse things.

But looking on their website now I can't find any mention of this difference. Maybe I just dreamt it...

Lokolo

No they did don't worry. I think it was easier for them to offer lower monthly rates so people went for the annual rate.

isofa

Lokolo wrote: »

No they did don't worry. I think it was easier for them to offer lower monthly rates so people went for the annual rate.

That's really cheeky of them, but at least you could compare the AER and hopefully avoid getting stung.

miller

Darth_Calculus wrote: »

Going back to the original poster's question, does anyone know how the FSCS works on accrued interest?

I have sent an email to the FSA, will report back here when I get an answer (I cannot see an answer anywhere in their FAQ's).