Silly question - monthly interest

Cara79

Hi there

This is probably a really silly question. Basically I’ve recently changed my current account so my interest gets paid monthly. This is 3.14% net.

If I have £1000 sat in my current account, do I get 3.14% of that, which is £31.40 or is the £31.40 divided by 12 (months)?

Sorry for being really dumb. Never had interest monthly so was trying to work it out roughly.

Thanks
xx

YorkshireBoy

Net interest = A x B / 365 x C x D

where,

A = average balance
B = gross pa rate
C = number of days in statement month
D = tax rate (0.8 for basic & 0.6 for higher rate tax payer)


For example, an A&L Premier Direct current account pays 5% AER (4.89% gross pa paid monthly).

If you're a basic rate tax payer, and your average balance throughout the month of July is £1,000 then your monthly interest is...

£1,000 x 0.0489 / 365 x 31 x 0.8 = £3.32 net

Cara79

Thanks very much Yorkshire Boy. I was a bit off with my calcs! Shame eh?!

That's helped me loads.

Thanks again,
x

EagerLearner

That just goes to show that seeing as most of us have maybe £1k as an example to start off with, then we spend it over the month, that we won't even get £3 by moving to a high-paying interest current account.... I'm depressed now... The 5% sounds so promising until you look at it in the real world!

oldwiring

Cara79 wrote:

Hi there

This is probably a really silly question. Basically I’ve recently changed my current account so my interest gets paid monthly. This is 3.14% net.

If I have £1000 sat in my current account, do I get 3.14% of that, which is £31.40 or is the £31.40 divided by 12 (months)?

Sorry for being really dumb. Never had interest monthly so was trying to work it out roughly.

Thanks
xx

3.14% per month = 44.92% a year! Is the 3.14% the net headline annual rate given you? What have you been quoted for
1. Annual gross interest rate (headline)
2. Annual effective interest rate (AER)
3. Annual gross interest rate for monthly interest.

The way tax is dealt with complicates the calculations but if you come back to me I'll work on it and explain.