How do you calculate 12 month fixed bonus?

powertron

For example a bank account has an interest rate of 1.55%.

Another account is 1.50% tax free/AER variable (including 12 month fixed bonus of 1.25%)

Which one pays more?

Lets say investing £1,000 in each account and they are tax free.

The 1.55% account will pay out £15.50. How much does the second one pay out in interest?

HappyMJ

It depends on a bit more than that. The first one being a bank account might pay interest monthly and compound the interest so you could get more than the headline rate of 1.55%

The second one might pay the basic interest of 0.25% monthly and the bonus annually.

I'd go for the first one anyway as you can get your money back without penalty. The second one you have to stay with them for 12 months to get the bonus.

colsten

If I had £1,000 to put away now, I'd go for an account that pays 5% (not 1.55%) AER.

YorkshireBoy

powertron wrote: »

The 1.55% account will pay out £15.50. How much does the second one pay out in interest?

50p less than the first one!

powertron

So the second account will pay out £15.00 but how does the 1.25% bonus work?

HappyMJ

powertron wrote: »

So the second account will pay out £15.00 but how does the 1.25% bonus work?

The second account pays 20p per month and £12.50 at the end of the year. It's an inclusive rate.

YorkshireBoy

powertron wrote: »

So the second account will pay out £15.00 but how does the 1.25% bonus work?

First of all, rather than have us guess, which account is it?


But in general, so long as you compare like for like, ie AERs, and the bonus lasts at least one year, that's all you need to do.