How To Earn Most Cash Freeeeeeee

rickwaller

my mate has got 5 interest free overdraft account from 5 banks. im saying dont u think its worth it where u will just put the money into a high interest saving account. u can earn up to £800 interest freeeeeeeeeeeeeeeeee

skiddy2k

rickwaller wrote:

my mate has got 5 interest free overdraft account from 5 banks. im saying dont u think its worth it where u will just put the money into a high interest saving account. u can earn up to £800 interest freeeeeeeeeeeeeeeeee

rick, let me tell you something.
if a bank offers 5% AER on a e.g. savings account, this doesnt mean that you will end up with 5% of the closing balance at the end of the year. Interest is accumulated daily and tends to be compounded on the final balance daily and then monthly.

Also, 5% interest is an AER - Annual Equivilant Rate. On this rate, the Gross interest will be around 4.2% and the net rate (after deductions) will be around 3.8%.

So, you would only get the e.g. 3.8% interest, and this isnt on your closing balance either!

Scrap the thought of getting £800 interest at the end of the year matey, its not that simple.

Hope this helps,
Skiddy

Descartes

skiddy2k wrote:

rick, let me tell you something.
if a bank offers 5% AER on a e.g. savings account, this doesnt mean that you will end up with 5% of the closing balance at the end of the year. Interest is accumulated daily and tends to be compounded on the final balance daily and then monthly.

Also, 5% interest is an AER - Annual Equivilant Rate. On this rate, the Gross interest will be around 4.2% and the net rate (after deductions) will be around 3.8%.

So, you would only get the e.g. 3.8% interest, and this isnt on your closing balance either!

Scrap the thought of getting £800 interest at the end of the year matey, its not that simple.

Hope this helps,
Skiddy

I don't quite get what you are on about. If a student puts money into an account for 1 year offering 5% gross that student will get 5% interest after 1 year.

skiddy2k

Descartes wrote:

I don't quite get what you are on about. If a student puts money into an account for 1 year offering 5% gross that student will get 5% interest after 1 year.

my point is, they wont get 5% interest on the closing balance. e.g. if you put £1k into an account in april 1st 2006, in april 1st 2007, you wont end up with £1050.

they calculate the interest daily, not on the closing balance at the end of the year.

melancholly

students do get gross interest normally though, unless they earn lots while they're studying.....

pollocmc

skiddy2k wrote:

my point is, they wont get 5% interest on the closing balance. e.g. if you put £1k into an account in april 1st 2006, in april 1st 2007, you wont end up with £1050.

they calculate the interest daily, not on the closing balance at the end of the year.

I don't follow this at all (not your fault - just AER in general!!!)

So if I put 1K in the bank on Jan 1st they calculate the interest daily, is that 5%/365 per day? is that compounded each day? I will play about with excel to illustrate it to myself if someone can give me a pointer.

Edit: doing it the way I think it works I came to £1051.12 after a year (gross) or are they NETing it each day? how do you tell them not to take the tax off?

Edit2!: Taking 20% tax off each day too gives 1040.69....

melancholly

pollocmc wrote:

how do you tell them not to take the tax off?

i'm now as confused as you about interest rates, but this link should take you the form to give them to get gross interest:
http://www.direct.gov.uk/Diol1/DoItOnline/DoItOnlineArticles/fs/en?CONTENT_ID=4017954&chk=sJQ8hk

skiddy2k

here's a previous thread on calculating interest on savings accounts:

http://forums.moneysavingexpert.com/showthread.html?t=253717&highlight=compounded+interest

pollocmc

I've looked up the definition of AER on the moneyextra site and it says the following:


AER - Annual Equivalent Rate

The AER - Annual Equivalent Rate - is a notional rate that is generally quoted on interest paid on savings and investments. It purports to demonstrate what your interest return would be if the interest was compounded and paid annually instead of monthly (or any other period).

If an account pays interest more than once a year, say, for example, monthly or quarterly, then the AER is calculated by adding each interest payment to the deposit and then calculating the next interest payment, compounding the interest. Thus, on accounts where interest is paid quarterly, the AER will be slightly higher than the quoted gross rate because of the compound interest earned on the interest paid during the year.

All advertisements for interest-bearing savings accounts quote AER, allowing you to compare the kind of return you may expect to get. However, you should remember that the AER is only a notional rate and will not necessarily reflect the cash return you will get since certain assumptions are made in its calculation.

The gross AER is the contractual rate of interest payable before the deduction of income tax. Net AER is the amount of interest payable after allowing for the deduction of 20% tax for basic rate taxpayers.

The AER quoted may include or exclude any bonus interest that may be payable. Be sure you are comparing like with like.

So to me it means that 5% is what you should get gross if it's paid annually and if it's paid monthly, it should be more? I can't find an easy plug in calculator for it though.

dmg24

my mate has got 5 interest free overdraft account from 5 banks. im saying dont u think its worth it where u will just put the money into a high interest saving account. u can earn up to £800 interest freeeeeeeeeeeeeeeeee

It was your sister last night.

This is Ryan Maloney, who has been banned several times under various aliases.

Please ignore him.