Monthly vs Annual intrest

dotdash79

Hi,

I will have some money to invest for about 12 month soon and been looking at the options. I have found a bond that pays 3.15% intrest, but it's paid at the end of the year or I have found one which pays 3%, but that could be paid monthly or at the the end of the year (I would get the intrest paid monthly so I could reinvest it into a high intrest savings account).

What I'm struggling to work out would it be better to take a lower rate but get the intrest paid monthly and put that into a high value saving account to earn more or stick with a stright higher rate.

I am a basic tax rate payer btw.

Any help would be welcome.

Thanks

Lee

Linton

dotdash79 wrote: »

Hi,

I will have some money to invest for about 12 month soon and been looking at the options. I have found a bond that pays 3.15% intrest, but it's paid at the end of the year or I have found one which pays 3%, but that could be paid monthly or at the the end of the year (I would get the intrest paid monthly so I could reinvest it into a high intrest savings account).

What I'm struggling to work out would it be better to take a lower rate but get the intrest paid monthly and put that into a high value saving account to earn more or stick with a stright higher rate.

I am a basic tax rate payer btw.

Any help would be welcome.

Thanks

Lee

If you take the interest annually the effect is if you had taken it monthly and put it in the fixed rate account. That is why there is a difference in return between monthly and annual versions of the same account.

I havent worked it out accurately but a quick approximation: 6 months of 3 % interest invested at 3% should give you 0.03*0.03*0.5=.00045, say 0.05% of the original investment. So the 3.15% annually is much better - you would need to invest the interest at 9% to beat it.

CLAPTON

to compare monthly paid or annual then use the quoted AER... that allows for the payment frequency

dotdash79

I managed to work it out in the end, I'm going for the higher rate bond.

Thanks for the help :-)