are there any compounded savings?

ZZaffy

I have been reading about compounded interest rate and this seems to be the best type of safe saving account but I cannot find any on offer. Mostly they are Fixed aer.

Glen_Clark

Compound interest simply means having the interest automatically paid into the same account, (usually either monthly or annually) so that you earn interest on that interest as soon as it is paid in. Nearly all savings accounts allow this.

droopsnoot

The AER is the interest rate after that has been done, assuming you have an account that pays interest more than once a year. So if your account pays you interest every month, what it's saying is that the percentage you will have earned after a year, including the compounding effect, is that headline AER figure. In that instance, with no other differences, there is no difference between having the interest monthly or yearly.

CLAPTON

the best savings are the one with the highest AER

C_Mababejive

Dont save>invest..

Glen_Clark

droopsnoot wrote: »

there is no difference between having the interest monthly or yearly.

True, but I prefer monthly so I can check every month that the bonus interest hasn't run out :eek:

Stompa

droopsnoot wrote: »

The AER is the interest rate after that has been done, assuming you have an account that pays interest more than once a year. So if your account pays you interest every month, what it's saying is that the percentage you will have earned after a year, including the compounding effect, is that headline AER figure. In that instance, with no other differences, there is no difference between having the interest monthly or yearly.

For taxed accounts there's a slight financial advantage in having interest paid annually, but it's so miniscule it's hardly worth considering.

droopsnoot

Another comment of course is that the effect of compounding that you read about is referring to reinvesting each years returns over several years, rather than within a single year period.

thenudeone

Where banks / BS offer an option of monthly or annual interest; they (almost?) always lower the basic (uncompounded) interest rate on the monthly version to cancel out the effect of the compounding, so that the amount of interest you receive if you leave all the money in for 1 year is exactly the same (and therefore with the same AER) regardless of how the interest is paid.

eg:http://www.skipton.co.uk/savings_and_investments/bonds/fixedRateBonds.aspx