Simple interest question

pauljoecoe

Sorry, its probably obvious but I am struggling this morning.

I have £2500 in my Nationwide flex direct account which I believe is paying 5% interest.

How much should I see added to the account each month? (before tax)

MoneySaverLog

0.05/12 * £2,500

TrickyDicky101

I guess it depends whether they pay interest monthly - assuming they do then:

=2500 * 5% /12

=10.42

(gross ie before tax)

Masomnia

Somebody will come along to answer you properly in a bit I'm sure, but the answer is 'a bit less than £10.41'.

You don't get 5%*2500/12 if that's what you're wondering, because the monthly interest is added to the account and you earn interest on that interest so it comes to 5% over the year.

MoneySaverLog

You wont get interest on interest as you'll have to cyphen it off each month as anything over £2,500 does not earn interest.

Masomnia

MoneySaverLog wrote: »

You wont get interest on interest as you'll have to cyphen it off each month as anything over £2,500 does not earn interest.

In that case you're probably not getting 5%, OP.

pauljoecoe

Ah. I was a little confused because I got my first statement and it said £0.33 and then £0.06 taken off (in tax I presume)

However I have just noticed that the opening credit amount was put in on 31st May and the interest added was 31st May so I guess thats one day interest?

£0.33 X 31 = £10.23

zagfles

MoneySaverLog wrote: »

You wont get interest on interest as you'll have to cyphen it off each month as anything over £2,500 does not earn interest.

Doesn't matter, the monthly rate still accounts for compounding, after all people could have less than £2500 in the account.

The monthly rate will be 1.05^(1/12) -1 ie 0.4074% ie £10.19 a month if you have £2500+ in the account

Confirmed on the NW web site:

5.00% AER (4.89% gross p.a.)

so 2500*0.0489 annually = £122.25 = £10.19 per month gross, as above, or £8.15 net (after tax).

pauljoecoe

Masomnia wrote: »

In that case you're probably not getting 5%, OP.

Nationwide say:

5.00% AER (4.89% gross p.a.) in-credit interest on balances up to £2,500 (fixed for the first 12 months)1

ColdIron

I got £8.04 in April and £8.31 in May

zagfles

ColdIron wrote: »

I got £8.04 in April and £8.31 in May

Makes sense - they'll do it on a daily basis, it'll average £8.15 a month.

Daily rate 8.15*12/365, times 30 for April and 31 for May gives exactly the figures you quote.