Kaupthing Edge - Tax or no tax

astral_dolphins

I've just opened an account with Kaupthing Edge and am looking at transferring to one of their fixed-term accounts.

I've just filled in the R85 form to receive interest without tax taken off as I currently earn less than the annual tax free income limit (and am not likely to reach it any time soon!), but after looking at the current interest rates I'm wondering whether I need to bother sending it off after all...

Current rates:
6 month term deposit rate = 6.97% AER (6.85% gross)
12 month term deposit rate = 7.15% AER (7.15% gross)
36 month term deposit rate = 7.15% AER (7.67% gross)

If I choose the 12 month account do I need to bother with the form as the rates are the same? And if I send the form off and choose the 6 month account I'm going to be worse off aren't I?
Can someone help, as I'm unsure as to which account to choose and whether to send off the form.

Thanks.

Laura

Lokolo

My dear Laura. Those rates are both gross.

Tax is 20%.

6 months with tax off is: 5.576%
12 month: 5.72%
36 month: 6.136%

The reason the AER and gross are not the same for the 6 month one is because I suspect the rate is paid monthly, therefore, the actual rate they give you is 6.85% but because of interest being paid monthly has compound interest, it will eventually give you a rate of 6.97%.

The 36 month, the overall interest you will get over the 3 years is 7.67%, which means you earn 7.15% yearly in effect.

If you don't send the R85 form off you will get the rates I have stated above.

Does this make sense to you?

Baldur

The rates shown are the pre-tax rate, if you don't send the form tax will be deducted from the interest at 20%.

astral_dolphins

Doh! Thank you to you both. I didn't really have much understanding of what the rates actually meant... I get it now.

Best get the form sent off then!! And I think I'll go with the 12 month one.

Thanks again for putting me straight