Aer

WGG1848

Natwest is offering cash ISA at 4.02^% AER. What will I get back at a fixed rate if I invest £1000 after one year?
Will I get back £1040.20?

nzseries1

Yes, that is correct. Investing £1000.00 for one year in a Cash ISA at a fixed rate of 4.02% will mean you get back £1040.20.

WGG1848

Thanks for the reply, but the offer also shows another rate of 3.95% Gross. Why a rate of 4.02% AER and the Gross one of 3.95%
What will be my return on the £1000?

Kavanne

The rate is not fixed on that product.

adambro

WGG1848 wrote: »

Thanks for the reply, but the offer also shows another rate of 3.95% Gross. Why a rate of 4.02% AER and the Gross one of 3.95%
What will be my return on the £1000?

A lower gross rate than AER probably means they are paying interest monthly. This is because AER is based upon interest being paid annually. When interest is paid monthly the gross rate is lower because of the compounded interest on the interest paid during the year. Therefore the interest paid each month will be a 1/12 of 3.95% but because you're getting this on the interest earned to date, this works out to be a higher AER than the gross rate.

Edit: This should show you how the interest builds when it is paid monthly rather than annually.

The left column shows interest being paid monthly at a 1/12 of the gross rate. The right column shows it being paid annually at AER. As you can see, they both produce the same return hence when you can compare using AER.

CLAPTON

further to adambro

a gross rate of 3.95% on a product that adds interest months means a monthly rate of 3.95%/12 = 0.329% per month

this compounded i.e. ((1+0.329) power 12) -1 = 4.02% APR

WGG1848

Thanks for your help, very much clearer and understandable now.