Working out interest help.

deefadog

Hi, i have rad the stickies but failed to find the info i need

Basically can somone tell me how to work out the Net (true percentage) from gross and AER? something simple please

I am a 22% tax payer btw so i get taxed 20% on my savings (please correct me if i am wrong)

grumbler

http://www.hmrc.gov.uk/rates/savings.htm
http://www.hmrc.gov.uk/rates/it.htm

While your total income including interest on savings is less than £32,400 (2005/06) you pay 20% tax on interest earned.

Net=Gross*0.8.

As far as I understend AER and Gross interest rate are the same. However, sometimes banks publish AER and gross rate slightly different. I do not know why.
Can anybody explain this?

deefadog

Thanks Grumbler.

So you mean gross x 0.8 = Net?

So the Halifax regular saver gives - 5.66% net (7.07% x 0.8 = 5.66%)

and ING - 4.0% net (5.0% x 0.8 = 4%)

This correct?

grumbler

deefadog wrote:

Thanks Grumbler.

So you mean gross x 0.8 = Net?

So the Halifax regular saver gives - 5.66% net (7.07% x 0.8 = 5.66%)

and ING - 4.0% net (5.0% x 0.8 = 4%)

This correct?

Yes, this is correct.
For Halifax now they advertise '7% AER/gross p.a'. I think I also have seen something like 7%AER/7.07%gross before. As I told, I do not know what 7.07% means and why it is different from 7%AER. I think the correct net interest is 7%*0.8=5.6%.
Also do not expect 5.6% on full £3000 for regular saver: 'HALIFAX REGULAR SAVER - ripped off' (Actually - not!)
If you pay £250 per month into regular saver you can estimate net annual interest as £250*6.5*5.6% (Here £250*6.5 is the average balance during the year).

deefadog

I see thanks, this is complicated.

basically I have £2000 in my ING account, i thought the best thing to do was to pay £166 a month into the Halifax regular saver!

So is it woth doing this or are there better deals elsewhere. i am more confused than ever now!

grumbler

deefadog wrote:

I see thanks, this is complicated.

basically I have £2000 in my ING account, i thought the best thing to do was to pay £166 a month into the Halifax regular saver!

So is it woth doing this or are there better deals elsewhere. i am more confused than ever now!

If you do not have any more money in the future to save, the best thing is to pay £250 to Halifax for 7 months, then £150, then 4x25 (you can correct Standing Order every month).
Or 7x£250+5x£50 (a little bit simpler).

deefadog

I see, i read from the other post that this would be more beneficial! cheers.

Is this combination of ING and Halifax the best around? or are there better accounts to do the same.

I need one instant access account (ING) as I save the car insurance, tax and xmas money in here per month, also it's there if I need it!

The £2000 is for savings and don't want to touch it for a year!

Any suggestions?

grumbler

deefadog wrote:

Is this combination of ING and Halifax the best around? or are there better accounts to do the same.

Instant access - A£L Online Saver 5.35%
Regular Saver - HSBC 8%, but you must have current account with HSBS and pay your salary into it.

SAVINGS section.

isasmurf

grumbler wrote:

As far as I understend AER and Gross interest rate are the same. However, sometimes banks publish AER and gross rate slightly different. I do not know why.
Can anybody explain this?

Gross interest is the rate used to calculate the interest you actually get paid (before tax)
AER is the total amount of interest you get paid during the year assuming you leave the interest in the account (i.e. takes account of interest being paid on interest)

Gross and AER will only be the same when the account pays interest annually, otherwise they will be different.

See the AER v Gross thread in the Savings FAQ.

deefadog

Thanks, i have been to the saving section! I can't go with the HSBC, So the Halifax regular savings is the best at the moment for me yes?

If i switch from ING to A&L, i'll have the best deal around for me at this time yes?

grumbler

isasmurf wrote:

Gross and AER will only be the same when the account pays interest annually, otherwise they will be different.

See the AER v Gross thread in the Savings FAQ.

Thank you, isasmurf. I read the thread, but still do not understend. :mad:
For monthly paid interest - does the Gross Interest stand for what I get during a year if I withdraw interest every month?