Interest rate explanation request

td

I am pretty good with money and understand most things but I have never had interest rates explained to me properly and am not sure how they are calculated.

Could someone explain how they work please.

More specifically a question related to interest:

1. If I take an ISA that is worked out monthly am I worse off than one that pays yearly or does it go like this - 6% per annum for ease of calculation would that mean .5% monthly working out at 6% annually? Or am I better because of the cumulative effect of adding the interest and then I have more in the account to gain interest on.

I ask also because I have just sold my house and it looks like for a short period of time I will be living with my dad and have about 100k in the bank and so am trying to work out what to do with it.

thanks
td

grumbler

For monthly interest 6% gross p.a. is (1+6%/12)^12-1=6.17% AER (6% AER is 5.84% gross p.a.).
If AER is the same and you don't make withdrawals, there is no difference between interest being paid monthly or yealy.

kenshaz

read Martins article on saving,it has a section on AERand gross comparisons,he makes it simple