Monthly Interest vs Annual interest

nilrem_2

JohnKellett wrote: »

Well the account I have has an AER of 2.60% for annual interest payments, and an AER of 2.25% for monthly payments... so am I being ripped off by having monthly payments?

No you are not being 'ripped off', most institutions pay less for the privilege of having your interest paid monthly, they usually just pay it monthly and don't offer an annual rate or if they offer both they let you make the choice.

I choose monthly interest because it suits the way I live off my income, I get a little less but I have money in my hand every month rather than waiting a year or so, any surplus I reinvest for extra interest which makes the difference between monthly and annual interest a little less.

JohnKellett

Yes I think you're right, I need to change accounts........
Thanks for all your help, much appreciated.
Night!
JK

YorkshireBoy

nilrem wrote: »

No you are not being 'ripped off', most institutions pay less for the privilege of having your interest paid monthly...

To be fair though, the gross p.a. rate normally compounds up to the annual rate AER. With John's account, there's a 0.35% differential on what is a very poor rate to start with.

As I said earlier, I've never seen such a differential before.


John,

One further thing...once an account goes "closed to new customers", that's generally a good sign that the rate is going to plummet - and fast. Anyone remember Halifax Liquid Gold?

guli

Here's my calculation, it's definitely correct for all my cash ISA calculation, IceSave accounts, Alliance Leicester's accounts and HSBC's.

6476.64*((1+2.25*0.8/100)^(29/365)-1) = 9.1867

Not exactly sure where the 0.0067 had gone though

Thanks

Alex