Simple (Daily) interest or Compound ?

FLAPJACK

Any idea how you know how the interest on accounts (i.e fixed rate bonds) is accrude.



I have looked and must be missing something as I have failed to find any advertised bond or cash isa advert that actually states how the interest is accrude....mainly just says "Interest paid at maturity".

Which is one is more favorable?

Thanks

opinions4u

It might help if you give some examples of your confusion.

The AER is often a useful comparison too, but if one account has interest paid away and another accrues the interest until maturity it doesn't really give you quite what you want.

Providers calculate interest daily using the gross rate. But you can have situations where that isn't capitalised to the account until maturity (like the Yorkshire Bank offerings).

A 5 year fixed term deposit could pay interest at different points throughout the term.

An account paying 5.00% gross, 5% AER and adding interest annually would pay out £276.28 interest on maturity to a non-taxpayer.

An account paying 5.53% gross, 5% AER that adds interest at the end of the 5 years would give exactly the same return.

oldfella

generally interest accrues daily, it is put into a pot, and added to the account monthly, yearly, or at the end of the term. When its added to the account you start getting compound interest, which explains the different gross and AER rates for the different methods.

the only exception I know is egg which accrues and compounds daily. This is actually bad news because their AER numbers assume the money is in the account all year, if it isnt you get a lower return than you would expect.

FLAPJACK

It was a Lloyds "regular saver a/c" pay in 12x£50 = £000 @ 4% net = £20. The amount of interest actually paid £9.00. The bank manager did agree (his personal opinion) that these type of accounts "could be marketed clearer".

Why can't we get (like you do with a loan) an itemised section on the p/w stating what you will get at the end of the term (in the loan situation what you pay in total) i.e invest X amount at X rate for X period, Gross figure and net figure, that way at the outset you khow what you are going to get.
I put this to the bank manager, he said that yes it's a good idea....particularly at this present time when Banks should be more "transparent".....but as he then said who would spend a year putting £50 away each month for £59!

A case of buyer (or invester) beware.....we are not all totally clued up on this subject.

opinions4u

Did you really expect them to pay you a year's interest on money that was in there for as little as a month?

http://www.moneysavingexpert.com/savings/best-regular-savings-accounts?utm_source=forum&utm_medium=clicks&utm_campaign=resourcebar

CLAPTON

FLAPJACK wrote: »

It was a Lloyds "regular saver a/c" pay in 12x£50 = £000 @ 4% net = £20. The amount of interest actually paid £9.00. The bank manager did agree (his personal opinion) that these type of accounts "could be marketed clearer".

Why can't we get (like you do with a loan) an itemised section on the p/w stating what you will get at the end of the term (in the loan situation what you pay in total) i.e invest X amount at X rate for X period, Gross figure and net figure, that way at the outset you khow what you are going to get.
I put this to the bank manager, he said that yes it's a good idea....particularly at this present time when Banks should be more "transparent".....but as he then said who would spend a year putting £50 away each month for £59!

A case of buyer (or invester) beware.....we are not all totally clued up on this subject.

12 x £50 isn't actually = £000

but the AVERAGE amount in the account will be the sum of
50 for 12 months interest = 50 x 4% =£2
50 for 11 months interest = 50 x 4% x 11/12 = 1.83
50 for 10 months interest =50 x 4% x 10/12 = 1.67


etc etc

so total interest is about £13 gross or 13 x 0.8 = £10.4 approx after 20% tax

FLAPJACK

Should have read £250x12=£3000.

Apologies

CLAPTON

FLAPJACK wrote: »

Should have read £250x12=£3000.

Apologies

really ????????????????

pqrdef

FLAPJACK wrote: »

Why can't we get (like you do with a loan) an itemised section on the p/w stating what you will get at the end of the term (in the loan situation what you pay in total) i.e invest X amount at X rate for X period, Gross figure and net figure, that way at the outset you khow what you are going to get.

It varies, depending on what date you open the account and what date you choose for the standing order.

But at the end of the day, assuming they calculate it right, you get the same amount of interest as if you'd made the same payments on the same dates into an instant access account offering the same rate.

There's no fiddle. It's just that your money doesn't start earning the interest rate until it's there.

Compounding doesn't come into it.

FLAPJACK

Thank you pqrdef for a reasonable "non-snide" reply.

Cheers