How to calculate interest?

book12

I am planning to open a monthly saver. I will be putting £20 each month. The interest rate 4.25% AER (4.17% gross p.a). The interest is paid monthly. After 12 months, it will be £240. With the interest, it's £240 x 4.35% AER = final amount . Is this the correct calculation?

I am also planning to open a savings bond as well. The bond is fixed for 5 years I will be putting £500. The interest is 5.25% AER (5.13% gross p.a.). The interest is paid monthly. With the interest, it's £500 x (5.35% AER x 5 years) = final amount . Is this the correct calculation?

evenasus

Use this - http://www.moneysavingexpert.com/savings/savings-accounts-best-interest#savingscalc

Baldur

book12 wrote: »

I am planning to open a monthly saver. I will be putting £20 each month. The interest rate 4.25% AER (4.17% gross p.a). The interest is paid monthly. After 12 months, it will be £240. With the interest, it's £240 x 4.35% AER = final amount . Is this the correct calculation?

First of all, which is the correct AER rate?

As far as the calculation is concerned, try the Regular Savings Calculator

I am also planning to open a savings bond as well. The bond is fixed for 5 years I will be putting £500. The interest is 5.25% AER (5.13% gross p.a.). The interest is paid monthly. With the interest, it's £500 x (5.35% AER x 5 years) = final amount . Is this the correct calculation?

See the Savings Calculator

somethingcorporate

Not quite. Interest is calculated usually on a daily basis and only on the money that is in the account at the time. So with regular savings the calculation can be simplified to the average amount in the account * interest rate.

Monthly saver @ £20 a month has an average monthly value of £120 (£0 at the start, £240 at the end, therefore the middle value - as it is being put in regular intervals at the same value).

So the interest calculation would be £120 * 4.17% (and remember tax! )

Slightly different for the bond since it looks like you are paying the money in upfront. In this case it would be as per your calculation - although if you leave the interest in the account then the value becomes compounded.

For instance, month 2 would be: (original value + month 1 interest)*monthly interest rate.

Hope that helps.