new SAGA Fixed Rate - monthly appears higher?

Geoffo_M

I'm wondering if there is a mistake on the SAGA fixed rate deals. The one year is offering an AER on 6.6% if you opt for annual interest but 6.8% if you take monthly. Two year deal is 6.55% and 6.75% respectively. Who would take the annual interest deal. Surely I must be reading this wrong?http://www.saga.co.uk/finance/spf/home_fixed_rates.asp

Jake'sGran

They are both paying the same rate which is a bit unusual and very good. It's just the AER which is higher for the monthly rate. It may be higher because each month you are really getting interest on that month's interest and so on e.g. in month 3 you are getting the interest rate plus a bit more on the amounts added each of the three months. Hope this makes sense.

Ian_W

Ah, mystery solved! Thought it was unusual.
The monthly interest option is only available if the interest is paid away from the account so:
Please note that monthly interest cannot be paid back to the account. This means that the AER rate is merely for illustrative purposes only.
It is unusual to find an account which offers a choice of monthly or annual interest paying the same gross rate to each, usually it's lower on the monthly one to take account of compounding [which Jake'sGran refers to] so the AER's match for both.