Birmingham Midshires 5 year bond in email

psychic_teabag

D1zzy wrote: »

.....................I need coffee!!

I think the pending issue is irrelevant - interest is calculated daily so the penalty will be 90 x the daily rate whenever its applied, and my understandig is they do nick your capital if you do not have enough interest to cover the penalty.

The point of the pending pot speculation is that the tax hasn't yet been deducted. So if they take the penalty from there, it's taken from gross interest. ie they pay you less interest, so you pay less tax. But once the pot has been actually credited to you, the tax has been deducted, and the (gross) penalty has to be taken from your net proceeds.

apt

Choose monthly interest if you need or are likely to need the income. Otherwise annual interest is better as it gives you 5.15% on your interest once it is added as well as your initial deposit.

Former_MSE_Dan

Hi folks,

Just to clarify what a few people have said, you can withdraw money after any time period. We asked B Midshires this and got the following answer

1) Is there any minimum term, or would I be able to eg. Put money in for 6 months then take it out (incurring the penalty)?

No minimum term so you can withdraw as above incurring the penalty

The terms of the account confirm this too.

Hope this helps

Dan

AirCooledHeaven

apt wrote: »

Choose monthly interest if you need or are likely to need the income. Otherwise annual interest is better as it gives you 5.15% on your interest once it is added as well as your initial deposit.

But the AER on both accounts is the same, so 5.03% compounded monthly is the same as 5.15% added annually? Or am I missing something?

psychic_teabag

AirCooledHeaven wrote: »

Given that the annual interest and monthly interest accounts both have the same % AER, on what basis should one decide between them

If you are having the interest paid to a separate account, you won't get the compounding of the monthly interest, and so you won't get the AER. But obviously you might need a monthly income.

If you are paying the interest into the account, I guess the main difference is when the tax will be realised - annually lets you defer tax liability. But this probably only matters if you are a higher-rate tax payer (in at least one of the years), or perhaps if you are a very low income and might be claiming back some of the tax.

On variable-rate accounts (not relevant here), monthly interest gives you an opportunity to spot if the rate has changed without you noticing.

psychic_teabag

AirCooledHeaven wrote: »

I think you will find that if you have an annual interest paying acount and you make a withdrawal before the 12 month anniversary, they will calculate the penalty based on the capital plus the accrued interest to date.

You can use the second anniversary if you prefer - the relative numbers should come out the same. But as far as I can see, once interest has been credited to the account, it is indistinguishable from capital.
IIRC, the amount of the penalty is based on the amount of money withdrawn. So I am just amusing myself by speculating exactly how the penalty is actually deducted - from capital (including previously credited interest), or from pending interest which is calculated daily but only credited periodically. And of course it depends on exactly how/when the tax is deducted.

Sauveur

Has this bond been withdrawn?

Former_MSE_Dan

yep it got withdraw at about 11.30 - AA one is still currently available though

Reaper

That's got to be the shortest offer ever. I don't suppose the AA one will be there much longer.

psychic_teabag

Another scenario which is probably equivalent... suppose you open the account with 100, wait exactly 90 days, then close the account. If interest is paid monthly, you have already received 1 pound interest (net of tax). The penalty is 1.25, so you lose 0.25 from your original capital. On the other hand, if interest is paid annually, they might just wipe the slate clean and give you your 100 back in full.

Because all the maths is linear, this applies at any 90-day period, except when interest has been paid within that period.