AER calculations

Truth_police

Whilst researching the online instant access best buy tables this morning I came across the Leeds bs 3.05% online access account. This product advertises an AER of 3.05%, which includes an unconditional bonus of 1.00% until 31 January - in reality I can never achieve this AER and I'm not sure this should be advertised this way. This all feels a bit naughty go me. Any thoughts / advice / opinions?

SnowMan

I think you are probably right that technically speaking they shouldn't be advertising the AER in that way.

The Leeds web page is

http://www.leedsbuildingsociety.co.uk/savings/onlineaccess.html

The account is effectively an indefinite one (as opposed to say a 6 month fixed rate bond where you can quote the rate over the 6 months and annualised) and so should be based on 12 months as I understand it.

Not sure of the precise legalities of it all and may be wrong there. The BBA code (does thats still apply?) at

http://www.bba.org.uk/media/article/calculation-of-the-annual-equivalent-rate-aer

suggests in A3 it should be the return over 12 months (the bit about conditional bonus doesn't apply) so should be quoted as about "2.7% AER, based on an account opened on 6th June" rather than "3.05% AER up to 31 January 2012 and 2.05% AER from 1 January 2012.

Ulster Bank had a 6 month bonus not so long ago and they quoted the achievable rate over 12 months. That included a 6 month period when there was no bonus and so the AER looked a bit low for those savers who knew to take out their cash and move elsewhere after 6 months.

Most bonuses these days are for 12 months (I have always assumed that it was the AER rules that led savings institutions to do this). So for one organisation to just it appears ignore the AER rules isn't really fair.

Savings institutions seem to be pushing the limits of the AER rules at the moment.

Nat West were advertising an AER based on a 12 month period from the 15th after the account was opened, and not advertising that assumption, rather than for the first 12 months.

Many of those awful stepped 5 year fixed rate bonds where you get say 6%,5%,4%, 3%,2% in the 5 years are shown with the AERs for the individual years e.g. 6% AER in year 1, 5% AER in year 2 etc, when in practice it is impossible to ever achieve a 6% annualised return. To me they should be quoting the average annualised rate over the 5 years as the AER.

You can always report Leeds to the FSA misleading advertisement helpline if you feel strongly enough about it.

http://www.fsa.gov.uk/pages/doing/regulated/promo/report/index.shtml

opinions4u

They've changed it!

http://www.leedsbuildingsociety.co.uk/savings/onlineaccess.html

AER now 2.73% (which looks about right - I make it 2.72% but they have a month's leeway on how they calculate it).

Rule A7 covers it.

SnowMan

opinions4u wrote: »

They've changed it!

http://www.leedsbuildingsociety.co.uk/savings/onlineaccess.html

AER now 2.73% (which looks right).

Rule A7 covers it.

Blimey that was quick of them.

I knew that someone with more expertise than me on these things would find the right rule (A7). Thanks.

Reaper

They must be reading this thread :wave:

SnowMan

They have now changed it to a 1% bonus payable up to 30 June 2012 rather than a 1% bonus payable to 31st January 2012 see here.

So they can now reasonably quote an AER of 3.05%, and is probably why they've changed it to a 12 month bonus :rotfl:

The google cache of the original page is (currently) here.