opening a bond with natwest

joe_purdy

Hi, im wondering if anyone can clarify something for me

Ive got a bond with natwest which matures on 11th may and want to open a new bond once this one finishes. Ive looked on there website and there is a 2 year bond with the following infomation:

£5,000 + Annual Interest3.40%,2.72% (after tax)

it says Annual Equivalent Rate (AER) illustrates what the interest rate would be if paid and compounded each year.

The amount im going to be putting into the bond is £10,000 so does this mean i would get £272 just at the end of the 2 years or would get £272 at the end of the first year then a futher £272 at the end of the second year so overall i would of gained £544 intrest over the 2 year period.

Hope someone can clarify this for me as im a bit confused, thanks :beer:

Baldur

Depends on when interest is paid but a rough figure would be gross interest over the two year period of £691.56, less tax @ 20% (£138.31) = £553.25 net interest.

opinions4u

I'd expect you to have £10,272 at the end of year one and £10,551.40 at the end of year two. If they pay all the interest on maturity Baldur's slightly higher figure above is correct. EDIT: Note glider's post below on compounding.

You would get a rate of 3.95% gross on a two year account with Cheshire BS or Derbyshire BS to get a return of £10,641.99. Or you could put £5,340 in to a cash ISA - Halifax are paying 3.65% for 2 years.

glider3560

Interest can be paid every year or monthly, BUT only to another Natwest account. So there will be no compounding.

Bear in mind the following that I've taken from the Natwest website: "Interest will be paid at 2.0% AER/Gross until the start date of your bond - 06 June 2011."

opinions4u

glider3560 wrote: »

Bear in mind the following that I've taken from the Natwest website: "Interest will be paid at 2.0% AER/Gross until the start date of your bond - 06 June 2011."

While 2% isn't the end of the world, am I the only one who finds this sort of lead in rate ever so slightly sneaky?

Start my account now !!

Baldur

opinions4u wrote: »

While 2% isn't the end of the world, am I the only one who finds this sort of lead in rate ever so slightly sneaky?

Start my account now !!

It seems to be a common ploy used by Natwest, they applied similar 'deferred bonus' terms for their e-savings account in the latter part of last year - with the bonus only being paid from the 15th of the month following the month of opening.