Monthly or Yearly interest

PhilAJ

My wife and I have over £25K wirth of existing ISAs eahc and obviously now need to transfer into a new provifer to take advantage of the rates.

We have often used ING in the past - who pay interest monthly - and this gives some comfort as the values go up regularly.

Most providers say there interest is yearly.

Given the same advertised rate - does it make any difference if its monthly or yearly?

Surely if monthly you get interest on the interest dont you ??

Any advice welcomed.

Phil

psychic_teabag

Usually, monthly interest is a slightly lower rate so that, with compounding, the AER stays the same.

ING is quoting 2.96% gross, which compounds up to 3% AER. It's the AER you need to compare.

I reckon that if money is in for not exactly a year, annual interest is very slightly better. But it makes very little difference in practise. Monthly does give the opportunity to spot if the rate falls.

DragonQ

psychic_teabag wrote: »

I reckon that if money is in for not exactly a year, annual interest is very slightly better. But it makes very little difference in practise. Monthly does give the opportunity to spot if the rate falls.

True. Something that I don't see mentioned much is that if you get monthly interest, it only works out the same as the yearly interest if you have the money in the account for a year. If you have money in an account for, say, 6 months, then you'll get more interest if you choose the yearly interest option rather than monthly interest (because after 6 months there hasn't been enough compounding to make up for the lower headline rate).