Icesave: Should I have monthly or annual interest?

chelseablue

I've been going round in circles trying to figure this out and need help!

Im thinking of setting up one of those Icesave accounts but is it better to go for the monthly or annual interest?

I'll be opening it with £25,000 and saving £3,000 per month. How much interest would I earn approx per month and do you earn interest on the interest?

Please advise as my brain will explode if I try anymore workings out!

x

nilrem_2

With £25,000 invested you will receive approx £100 per month after tax @ 20% has been deducted, obviously adding £3000 a month will increase this figure.

Personally I always opt for monthly interest I then have a bit of spending money and the surplus can be reinvested as I wish.


Added

Adding £3000 every month will add approx another £12 to the interest every month so 1st month you will get about £100, 2nd month after adding £3000 about £112 3rd month adding another 3000 approx £124. Obviously these figures are only rough as it depends on when you add the extra amounts and whether the interest is allowed to accumulate or not but it might give you a rough idea

nilrem_2

I forgot to add, if you take monthly interest and have it added to the account the AER works out the same anyway.

FWIW I prefer my interest to be paid into my Normal current account where I can do as I wish with it, there is also the 'feel good' factor of seeing the cash arrive in my account every month!

[Deleted User]

Whether interest is paid monthly or annually you get teh same interest as monthly is compounded. I would get it paid monthly as its likely to be a random time that you require the cash to buy the house.

Given the fact that you are likely to be 40% tax boundary and interest rate is at 6.2% for the year. Your interest will be £77.50 for the first month, and will grow by an additional £9.30 every month.

Im shocked you can earn so much money without a basic understanding of maths

nilrem_2

Yant1 wrote: »

Im shocked you can earn so much money without a basic understanding of maths

TBF a lot of highly skilled people are not brilliant with maths I suppose it can be a bit boring to some and if one doesn't regularly do percentages one can get a bit rusty at it.:)

FWIW I know a professor who teaches [SIZE=-1]Geomorthology and is hopeless at reading maps! Lol[/SIZE]

chelseablue

Yant1 wrote: »

Whether interest is paid monthly or annually you get teh same interest as monthly is compounded. I would get it paid monthly as its likely to be a random time that you require the cash to buy the house.

Given the fact that you are likely to be 40% tax boundary and interest rate is at 6.2% for the year. Your interest will be £77.50 for the first month, and will grow by an additional £9.30 every month.

Im shocked you can earn so much money without a basic understanding of maths

U and me both! Passed my maths GCSE on the 2nd go....!

I dont earn enough to pay 40% tax. The savings are joint with my partner

Thanks for all the replies!

Milarky

If monthly interest is compounded to same rate (the same 'AER') as annual interest you will only achieve the same total if you pay no tax. The difference is very small, however

[I've assumed ICEsave pays exactly 0.5% per month to make the sums simpler]

ANNUAL:
eg 0.5% per month: compounds (gross) to 6.1677812% pa

If you pay tax at 20% the net return become 4.93442249% pa

MONTHLY: (equivalent)
BUT if you pay tax at 20% and take income monthly it is post tax

ie 0.4% (net) per month: compounds to 4.9070208%

even though the AER is the same

The difference is only (4.93442249% - 4.9070208%) or 0.0274%

0.0274% of £25000 is £6.85 or 57p a month

nchunt34

Icesave monthly...balance credited with interest owing. Mr Darling says it's all covered! May take a while to get back though.
Icesave annually... oops, where's the interest on the balance sheet at the time the bank went bust?

ad44downey

better with monthly interest it turns out........

Stompa

nchunt34 wrote: »

Icesave monthly...balance credited with interest owing. Mr Darling says it's all covered! May take a while to get back though.
Icesave annually... oops, where's the interest on the balance sheet at the time the bank went bust?

I must admit I've not seen any mention of exactly how this will work, but I'd have thought since interest is calculated daily (and added monthly or annually), then the interest would be calculated up to the exact day the bank goes bust. Or does anybody know otherwise?

shaz77_2

Stompa wrote: »

I must admit I've not seen any mention of exactly how this will work, but I'd have thought since interest is calculated daily (and added monthly or annually), then the interest would be calculated up to the exact day the bank goes bust. Or does anybody know otherwise?

I believe we will get all interest owed to us up until yesterday whether the interest is paid monthly or annually.