Monthly or Annual

Running_man

Hi
Been looking at a fixed rate isa-

1 year fixed annual interest At 2.75-Monthly interest 2.73

4 year fixed annual interest At 4.25-Monthly interest 4.23

Now the difference only being .02 are you better taking monthly so get compounded interest.

Also if for whatever reason you have to withdraw money with an interest penalty(dont envisage drawing it but you never know)is monthly interest better as you will already have got x amount of interest over so many months

Sanzai

I don't think it compounds in quite the way you seem to believe. If the 2.73% rate is the AER based on monthly interest, then it will be lower than the 2.75% AER from the annual interest. If it was genuinely 2.73% monthly interest, then that would equate to a compounded interest of 38.2% over the whole year!

I doubt that anyone would offer this sort of ISA to you (ever, let alone in the current economic climate) but if they have then let me know who the provider is please

Furthermore, the interest is calculated on a day-by-day basis, i.e. for each day the money is in the account, it earns interest at the rate specified. If you think you might need to withdraw some money, it is best to check the specific T&Cs of the account you intend to open with regard to penalties, etc.

CLAPTON

the AER tells the story... so for the one with the higher AER as componding is already included in the AER

Geoffo_M

That looks like the 4 year Nationwide ISA you are quoting there. I think you will find that the monthly 4.23% rate is the annualised rate - and that the monthly rate is 4.15% (4.15% compounded is equal to 4.23%). So in this case, by taking annual interest, you are actually getting that extra 0.02%

Running_man

Yes it is the Nationwide isa-Read it again and it is as you say 4.23 is the annualised rate.
Teach me to read it properly-and not post before brain in gear..