Compound Interest ....a thing of the past?

FLAPJACK

Having looked at the best buy tables of Fixed Rate Bonds I see that that all (it seems) pay the interest annually to a third party account.

I assume that for smaller deposits the sum total won't be much different from compound interest (but still every penny counts), however for larger amounts the difference becomes significant, to the advantage of the institution.

So as savers/pensioners we are getting screwed over yet again.

Anyone know of any accounts that still compound interest?

Each time I look at the rates being paid the word "Gross" takes on a complete new meaning.

opinions4u

FLAPJACK wrote: »

Having looked at the best buy tables of Fixed Rate Bonds I see that that all (it seems) pay the interest annually to a third party account.

I assume that for smaller deposits the sum total won't be much different from compound interest (but still every penny counts), however for larger amounts the difference becomes significant, to the advantage of the institution.

So as savers/pensioners we are getting screwed over yet again.

Anyone know of any accounts that still compound interest?

Each time I look at the rates being paid the word "Gross" takes on a complete new meaning.

Stick your interest monthly in to a regular saver account paying 8%. Then you're not being screwed over.

Yorkshire Bank and Clydesdale Bank will both compound.

xylophone

Halifax Fixed rate savings? http://www.halifax.co.uk/savings/pdf/savings-account-conditions.pdf page 11
Vanquis bank http://www.highyieldaccount.co.uk/terms-and-conditions/index.aspx condition 9
appear to compound.

http://www.moneysupermarket.com/savings/fixed-rate-bonds/?gclid=CIjWwfeu77ACFVQqfAodTzDkuA&source=GOO-131766AA&p=0&keywords=fixed+rate+bondsExact&ef_id=zg29z9B6MjYAADLkFkwAAAAP:20120627213109:s
I guess you just have to read through all the terms and conditions of any accounts that appeal.

oldvicar

opinions4u wrote: »

....
Yorkshire Bank and Clydesdale Bank will both compound.

Wot? Yorkshire/Clydesdale are the worst offenders for NOT compounding. A lot of their fixed term accounts pay simple interest. They can be spotted where the AER is less than the Gross interest rate (for terms over 1 year).

VT82

I know it's a pain, but it does help the institution manage the interest rate risk. It's easier to hedge the fixed rate savings, turning the fixed cost to the bank into a constant margin over their benchmark rate, if they know the interest bearing balance will stay constant over, say, five years. It's easier than having to work out what the balance on which they will be paying interest will be each year, taking into account what proportion has applied for 'interest to be added to the account' rather than being paid externally, how much interest is to be compounded based on the interest rate, when the interest compounds, whether the gross interest (R85/ISA status allowing) or net interest needs to be compounded etc.

And as well as being easier to hedge if the balance stays constant, it's probably cheaper for them to hedge if they hedge it with a derivative with a static notional, rather than having to request a complex 'accreting' swap taking into account the accreting savings balance.

Of course, the big boys should be able to manage it, and in a lot of cases, the cost/risk isn't massive, but for the smaller societies there isn't the resource to go into working all that out.

So I don't really think they are doing it to shaft the consumer. It's just an unfortunate by-product of the way the behind the scenes workings go. And, as ever, if you're not happy, don't go for it.

alanq

Britannia/Co-op Fixed rates for 1,2,3 years at 3.50%, 3.75% and 4.00% resp. can have interest compounded.

opinions4u

oldvicar wrote: »

Wot? Yorkshire/Clydesdale are the worst offenders for NOT compounding. A lot of their fixed term accounts pay simple interest. They can be spotted where the AER is less than the Gross interest rate (for terms over 1 year).

I'll put it another way.

They pay the interest on maturity. If you work up from the AER quoted there is a compounding effect included.

xylophone wrote: »

Halifax Fixed rate savings? http://www.halifax.co.uk/savings/pdf/savings-account-conditions.pdf page 11
Vanquis bank http://www.highyieldaccount.co.uk/terms-and-conditions/index.aspx condition 9
appear to compound.

http://www.moneysupermarket.com/savings/fixed-rate-bonds/?gclid=CIjWwfeu77ACFVQqfAodTzDkuA&source=GOO-131766AA&p=0&keywords=fixed+rate+bondsExact&ef_id=zg29z9B6MjYAADLkFkwAAAAP:20120627213109:s
I guess you just have to read through all the terms and conditions of any accounts that appeal.

While the Halifax T&Cs allow for it, I can't see any of their products that provide it.

Masomnia

As long as you pay the interest into another savings account you're still getting compound interest. The difference that a few 1/10ths of a per cent on your interest makes will be pence.

Thrugelmir

Compound interest is an investment mantra. So unsure how it can a thing of the past?

Reinvestment is the key. Certainly of dividends.