monthly or annually interest rates?!!!CONFUSED

Chris££

Hi, im have a few saving accounts and was wondering whether i should be asking banks if the interest is paid annually or monthly? One of my accounts it gets paid monthly, whereas i have one which is annually. Does it make a difference and should i transfer my money from the annual account to the monthly?

jamesd

There's a very small increase in the amount of interest you get from the annual option because you don't pay tax on the interest on the interest for the annual versions. If seeing the interest coming in monthly makes you save more, that's more than enough reason to go for monthly interest.

The other time it makes a difference is if your tax rate changes from one tax year to the next. You're taxed on the interest when you receive it so you can pick annual or monthly to receive some of the interest in the best possible tax year.

If there is no tax on the savings there is no difference between annual and monthly, so pick whichever you prefer.

If you can't decide, two accounts with different banks is useful extra protection from having the money unexpectedly locked up for a few months while you wait for FSCS compensation if one goes bust.

Lokolo

^^ the above is based on that the AER is the same.

AER is the annual equivalent, so if you get paid monthly and left the interest in, the AER is the rate you get if you had annual interest.

Paul_Herring

On 6% AER you gain an extra 27p interest per £1000 saved per year if you're a 20% basic rate taxpayer if you get interest annually:

http://spreadsheets.google.com/pub?key=pNBpCyyhhED0L42bCUZCgWA&hl=en