Annual vs Monthly interest

Stonk

What's all this about "spending the interest"? Rule number N (I forget which) of saving is - Do Not Spend The Interest!

Interest is not free money, it's not a prize - it's what stops your savings being depleted by inflation (and barely manages it, these days). Leave the interest in the account; otherwise you might as well have stored the money under your bed.

My other half usually suggests we go out for a meal on the proceeds of a large interest payment or a Premium Bond win! So now I hide the statements ...

)

EagerLearner

I don't spend the interest... but others may be tempted to so I recommend the yearly interest for them - my OH knows better than to suggest we spend any interest gained but if he did I might allow it once in a while I guess... we only get around £22 all in each month, not exactly a fortune ;o(

EagerLearner

Robert_Sterling

Beware of maths

Let r be the monthly rate on offer.
Let R be the annual rate on offer

If r^12 < R go for Annual Rate R
If r^12 = R It does not matter.
If r^12 > R It must be a mistake
Check the AER on offer.

Mathematics ... The subject that counts

PJD

Stonk wrote:

What's all this about "spending the interest"? Rule number N (I forget which) of saving is - Do Not Spend The Interest!

Interest is not free money, it's not a prize - it's what stops your savings being depleted by inflation (and barely manages it, these days). Leave the interest in the account; otherwise you might as well have stored the money under your bed.

My other half usually suggests we go out for a meal on the proceeds of a large interest payment or a Premium Bond win! So now I hide the statements ...

)

Say I'm someone who spends the interest on taking my OH out for a meal, therefore might as well shove the money under my bed. -- well, what do I pay for the slap up meal with - cos I havent earnt any interest?

Ted_Bloke

As long as they really are the same rate i.e. AER - and even this is trouble to make out sometimes - then for several reasons monthly seems better than yearly.

One is that it is so easy to be confused! About all sorts of things - half or more of this site is because of all the things that can be confusing and confused. If things are not what you were expecting, you can see that after a month if interest is credited monthly and do something about it. If you only find out seeing the figures after a year it is too late.

Secondly, correct me if I'm wrong someone, often it won't make a difference, but if it does then more often than not won't you on average pay slightly less tax if earnings are smooth between years? Now I've said that I wonder - it depends how tax on savings is stepped, how it interacts with other income for tax purposes, and how it is declared and certified. If I know that next year my general income will drop, am I better off with a yearly credit that I will get next year?
HELP!

Stonk

Ted_Bloke wrote:

As long as they really are the same rate i.e. AER - and even this is trouble to make out sometimes - then for several reasons monthly seems better than yearly.

One is that it is so easy to be confused! About all sorts of things - half or more of this site is because of all the things that can be confusing and confused. If things are not what you were expecting, you can see that after a month if interest is credited monthly and do something about it. If you only find out seeing the figures after a year it is too late.

Secondly, correct me if I'm wrong someone, often it won't make a difference, but if it does then more often than not won't you on average pay slightly less tax if earnings are smooth between years? Now I've said that I wonder - it depends how tax on savings is stepped, how it interacts with other income for tax purposes, and how it is declared and certified. If I know that next year my general income will drop, am I better off with a yearly credit that I will get next year?
HELP!

Fair enough, but neither of these points relate directly to interest.

"Being confused" is a personal problem and shouldn't be a consideration in whether one way is better than another!

As for taxation, well, that depends on far too many other factors to make a general statement. I can't see how smooth interest payments reduce your tax liability, and I suspect that for every person for whom it does there is another for whom it does the opposite! Personally, I would prefer lump sums at times of my own choosing.