Northern Rock monthly interest rates

savetilibleed

I was just looking at the Northern Rock Fixed Bonds and I am struck (as with other accounts of theirs where there is a montly interest option), how much lower the rate is for monthly compared with annual interest.

Northern Rock 2 year Bond
Gross 3.50%/Net 2.80% (annual interest)
Gross 3.20%/Net 2.56% (monthly interest)
£280/yr on £10,000 invested at annual rate
£256/yr on £10,000 invested at monthly rate

Compare

Saga 2 year bond
Gross 3.60%/Net 2.88% (annual interest)
*Gross 3.54%/Net 2.83% (monthly interest)
£288/yr on £10,000 invested at annual rate
£283.20/yr on £10,000 invested at monthly rate

The Saga account with its slightly higher annual pays only £4.80 less at monthly but the NRock account pays £24 less at monthly.

Why??

martinman3

savetilibleed wrote: »

The Saga account with its slightly higher annual pays only £4.80 less at monthly but the NRock account pays £24 less at monthly.

Why??

The obvious answer is that the AERs are different for the NR annual and monthly versions. Annual interest is 3.5%, monthly interest is 3.24%.
It seems that NR would prefer annual interest payments and this is the result. Unfortunately, others may copy this just like the short term fixed bonus on some ISAs.

opinions4u

Gross 2.54%/Net 2.83% (monthly interest)

I assume your second Saga rate is 3.54% gross!

The Saga account with its slightly higher annual pays only £4.80 less at monthly but the NRock account pays £24 less at monthly.

Why??

Basically Saga are playing fair and offering the same AER (3.60%) to all their customers.

On the other hand, NR are a paying 0.26% lower AER (3.24% v 3.50%) for monthly interest. While they could argue that there are administration costs involved in paying interest more frequently, the rate differential is significantly higher than those additional costs.

In other words, they are being a bit cheeky. But then what would you expect from something 100% government owned?

savetilibleed

martinman3 wrote: »

The obvious answer is that the AERs are different for the NR annual and monthly versions. Annual interest is 3.5%, monthly interest is 3.24%.
It seems that NR would prefer annual interest payments and this is the result. Unfortunately, others may copy this just like the short term fixed bonus on some ISAs.

Yes there is a large difference in AER
NR 3.50% annual/3.28% monthly
c.f.
Saga 3.60% both annual and monthly.

savetilibleed

opinions4u wrote: »

I assume your second Saga rate is 3.54% gross!

Oops yes - I've corrected the original post now thanks

opinions4u wrote: »

Basically Saga are playing fair and offering the same AER (3.60%) to all their customers.

On the other hand, NR are a paying 0.26% lower AER (3.24% v 3.50%) for mothly interest. While they could argue that there are administration costs involved in paying interest more frequently, the rate differential is significantly higher than those additional costs.

In other words, they are being a bit cheeky.

Exactly my thoughts - unfair and is typical of many of their accounts. Saga, Coventry, LTSB etc all fair - just a small reduction for monthly.