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Comparing accounts that pay interest monthly vs annually
RowaN
Posts: 184 Forumite
Wonder if someone can kindly help me with some maths please!
Am I better off putting money into a 1.8% savings account that pays interest annually, or a 1.4% account that pays monthly (and therefore compounds the interest earned, month upon month)
i.e. is there an easy way to compare accounts that pay interest monthly vs annually?
Thank in advance.
Am I better off putting money into a 1.8% savings account that pays interest annually, or a 1.4% account that pays monthly (and therefore compounds the interest earned, month upon month)
i.e. is there an easy way to compare accounts that pay interest monthly vs annually?
Thank in advance.
I hear the cry of the silence around me.
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Comments
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is there an easy way to compare accounts that pay interest monthly vs annually?
Yes, it's the use of AER (Annual Equivalent Rate) on all interest-paying accounts, which is a standardised calculation that takes account of the effect of compounding. So, if you're comparing a 1.4% AER account with a 1.8% AER one, it doesn't matter when each pays interest, the use of AER negates this effect and the 1.8% one is automatically better.0 -
You look at the AER on the account. If the AER is the same, then the monthly/annual interest is down to preference/circumstances, i.e. some people may rely on the monthly interest paid out into their bank account (not a lot these days mind you).Stephen Covey once said that "when you teach once, you learn twice". That is the primary reason for my participation on the forums as an IFA.
Although I strive to provide accurate information in my posts, there may be the odd time when I fail. Yes I know it's hard to believe but even Your Hero can make mistakes. Apologies in advance.0 -
As others have stated, the AER exists for this purpose.Wonder if someone can kindly help me with some maths please!
Am I better off putting money into a 1.8% savings account that pays interest annually, or a 1.4% account that pays monthly (and therefore compounds the interest earned, month upon month)
i.e. is there an easy way to compare accounts that pay interest monthly vs annually?
Thank in advance.
Are the rates you quote AER, gross or net?0
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