B & B monthly or annual interest?

bestyman

I have a B and B internet saver 3 account . Had it about 4 months and getting no interest . I assume this is because its paid annually , it says I can get interst monthly if I want . What should I do? Am I better off with monthly interst ( due to compound interest?)
Thanks

oldwiring

The way it's done by organisations makes no difference in the end. I assume that B&B offer a lower headline rate for monthly than annual. What are rates quoted?

bestyman

Rate is 6.51% , link here http://www.bradford-bingley.co.uk/savings/internet-saver-issue-3.asp

Cheers

Baldur

bestyman wrote: »

Rate is 6.51% , link here http://www.bradford-bingley.co.uk/savings/internet-saver-issue-3.asp

The AER of the account is the same, whether paid monthly at 6.32% or annually at 6.51% - any difference of one over the other would be pennies.

oldwiring

To prove
Dvide monthly rate by 1200; add 1 to the sum; raise this figure to the twelfth power; subtract 1; multiply this by 100.

riad_2

Baldur wrote: »

The AER of the account is the same, whether paid monthly at 6.32% or annually at 6.51% - any difference of one over the other would be pennies.

How about for the NET AER? i.e. the 6.51% is clearly the gross AER (when gross interest at 6.32% p.a. is paid monthly).

The net p.a. paid monthly is 5.06% (if paid monthly). Would the NET AER therefore work out to the same as the net p.a. if paid annually (i.e. 5.21%).

Wondering as they never give us the NET AER (which is probably what is relevant to most of us).

YorkshireBoy

riad wrote: »

Would the NET AER therefore work out to the same as the net p.a. if paid annually (i.e. 5.21%).

No. The "pennies" Baldur mentions are the result of annual taxation of the interest being very slightly better for the account holder than monthly taxation of the interest.

riad_2

I know this is answering my own post, but just thought I'd post this for the interest of others.

Found the formula to work out AER on
http://www.investopedia.com/terms/a/aer.asp

As expected, plugging r=0.0632 and n=12 equals an AER of 0.06506,
Which agrees with B&B's AER of 6.51%
http://www.bradford-bingley.co.uk/savings/internet-saver-issue-3.asp

Answering my own question of if the NET AER will be the same, plugging r=0.0506 and n=12 equals an AER of 0.0518.

So as we can see... NET AER for interest if paid monthly works out to be 5.18%, whereas the net for if interest is paid annually per B&B's website is 5.21%.

A 0.03% difference on say a balance of say £10,000 is £3 p.a.,! gosh!! I guess I'll be opting for monthly interest in future! :A

Stavros_3

I'm on monthly interest, its paid into the issue 3 account on the last day of the month, I prefer it that way