Santander eSaver (Issue5) - Difference between annual and monthly interest ?

wizard102

Ok I really can't understand how annual interest compares with receiving internet monthly and if they work out the same or if you receive less with monthly interest.

Basically I am looking at this account : wwx.abbey-products.com/ebanking/savings/esaver/index_v22.html (change to www)

Interest yearly : 3.20% gross/AER (variable), which includes a variable bonus of 2.70% gross/AER for the first 12 months from account opening

Monthly interest : you can receive a monthly interest rate of 3.15% gross/AER (variable). This rate includes a variable rate bonus of 2.65% gross/AER (variable) for the first 12 months from account opening.

So yearly interest is 3.20% gross/AER and monthly interest is 3.15% gross/AER .

So say I had £1000 in this account and I leave this in here and never withdraw anything for 12 months

Would choosing monthly interest give the same amount in my account after 12 months as choosing yearly interest ?

opinions4u

The monthly interest rate is 3.15% gross, 3.20% AER.

Santander repeatedly mis market the AER on this account, to their detriment.

Your post should probably be on the main Savings forum too!

wizard102

Ok, sorry how do I move this thread to the main savings section then ?

Also I still don't know the difference between all this AER and Gross stuff. Can someone explain or just basically answer the question below

Basically after 12 months would the amount in my account be the same regardless if I choose annual or monthly interest ?

grizzly1911

What was said above ^^, except if you have the monthly interest paid to a separate account.

Whatever can't see .05% as a deal breaker.

psychic_teabag

Martin describes AER here : http://www.moneysavingexpert.com/banking/interest-rates#AER

opinions4u

The answer to your question will be little or no difference either way, other than the impact of rounding. So pennies in it.

Gross is the contractual rate of interest paid by the bank. £3.20 on every £100 where interest is paid annually.

Where interest is paid monthly, they are contractually required to pay £3.15 per year per £100. So in month one they pay 1/12th of this. Around 26p per £100. If that money is left in the account, interest is then earned on the original £100 plus the interest added too. Over the course of a year you should get £3.15 interest per £100 of original capital plus 5p interest on the interest added each month. Taking you up to £3.20 for a full year. Hence 3.15% gross and 3.20% AER.The AER allowing you to compare monthly and annual interest methods.

Then there's net. Tax deducted from the gross. So 20% of your interest gets deducted and sent to HMRC. For monthly interest accounts this means you will ran marginally less than annual interest. But not by much.

wizard102

Thank for the the explanation.

So when sandander say " you can receive a monthly interest rate of 3.15% gross/AER (variable) "

This is wrong ?

For monthly interest can gross not be the same as AER ?

opinions4u

wizard102 wrote: »

Thank for the the explanation.

So when sandander say " you can receive a monthly interest rate of 3.15% gross/AER (variable) "

This is wrong ?

For monthly interest can gross not be the same as AER ?

Unless the gross is less than around 0.95% it cannot be the same as an AER on a monthly interest account.

Even below 0.95% they aren't the same - calculate to a third decimal place and the AER will be higher.