9 month bond interest

fair_enough

Hi All,Is someone able to help me understand the interest rate for a 9 month bond.I note N&P offer one and when called to ask why it is 2.59% g and 2.6% AER the poor lady got more and more confused and it was more an more obvious she didnt know either.How can 2.59% for 9 months equal 2.6% AER?I am normall pretty good with numbers but the penny is really not dropping with this one.The lady at N&P ending up logging it as a complaint (i suppose she had no other option) for somone to call me back but in the meantime can any of you help?Thanks

Paul_Herring

Is the gross rate paid monthly or on maturity?

gozomark

both figures are annualised

noh

As said by gozomark above it is not 2.59% gross for nine months.
It is 2.59% gross p.a.
So if you opened an account with £10000 at maturity after nine months your gross interest would be 259 x 9/12 = £194.20

oldfella

AER has to be annualised - so the gross interest rate is 2.59% which you get for 9 months. To get an annual rate they assume you could get the same interest rate for a further 3 months, where interest on the capital plus 9 months interest would deliver an effective 2.6% over the year.

Sceptic001

At risk of adding to your confusion, you can get a much better deal for a 6 months fixed rate at the Chelsea BS 3.7% (3.73% AER) http://www.thechelsea.co.uk/savings/invest_fixedrate_st_na_intro.html

fair_enough

Thanks to all,I understand it now - most thanks to noh and oldfella.In the meantime N&P called back and told me that the BBA set the AER for them!!! I have now called them and explained this and suggested some training off the back of it - they probably think i am a prat!To be honest i have decided not to fix at all at the moment but i jsut had to work out the answer once i got caught up in it.