The Top Easy Access Savings Discussion Area

Mr._H_2

nic_c said:

masonic said:

nic_c said:

masonic said:

grumbler said:

Rollinghome said:

flobbalobbalob said:

spider42 said:

nic_c said:

martinm1 said:

europa said:

Rollinghome said:

europa said:

Rollinghome said:

grumbler said:

Rollinghome said:

flobbalobbalob said:

Rollinghome said:

Justsayit7 said:

Cynergy not doing monthly interest are missing a trick. 4.80%

Could be, but with banks like Cynergy offering new accounts after 11 days, any serious rate hoppers opting for monthly interest would be losing a smidgeon if they kept switching accounts.  

When an annual account is paying 4.80%, a monthly version would only pay 4.70% after a month.  The monthly rate will only match the annual rate if closed on an anniversary.

But then I never understood why anyone would want monthly interest from an easy access account. For a one or more years fixed term I do understand.

4.8% AER pays exactly the same per day as 4.7% monthly . Both accrue the same interest daily and nothing to do with an aniversary.

You clearly don't understand what AER means do you?  I'll give you a clue, it means annual equivalent rate, not daily equivalent rate.

An account paying 4.7% interest monthly will pay a daily applied rate of 4.7%. Compounded each month that will give you the equivalent of 4.8% (AER) after 12 months, and only after 12 months.  If you close the account at one month there will be no compounding so you will only get 4.7%.  You will only get 4.8% AER if held for a full year or following anniversaries.

 '4.8% annual' will pay a daily applied rate of 4.8%  No matter when the account is closed, you will still get 4.8% AER.
If that isn't clear, you need to try googling.

I'm not convinced. Can you google and post a reliable proof, preferably with an example of calculation?

And even if what you say is true, I don't see any significant difference for 4.7% and 4.8%.

1.048^(1/12) = 1.00391

4.7/12 = 0.392

Nope sorry. I've wasted enough time on this already.  It's your money and if you still don't get it, you don't get it. DYOR.

Andy's point above is completely right too.  If you open the Cynergy account with 4.8% AER annual interest, you'd get more than that if you closed the account and so compounded early. Always assuming the new account paid the same rate or better.

We aren't talking big numbers here, unless a very large sum is held in the account.  The applied rate for monthly is just 0.10% lower, but interest received will be a little bit lower if held for less than 12 months or another anniversary of the account.  Annual Equivalent Rate means you get that rate if held for a year.

This is incredibly useful info. I am relatively savvy with these things, and even i thought monthly interest (with the same AER) was equivalent regardless of when the money is withdrawn. So many thanks for alerting me and others to this important anomaly !

That's good.  It's not a lot of money to worry about unless the balance is large but just as well in our pocket as in the bank's.  And it might be why so many banks are offering monthly only accounts now.

Indeed. If i were a bank, that's exactly what i would do. AER clearly isn't fit for purpose. 

It is fit for purpose as it allows comparing different products to normalise them over one year.  Compound interest seems to confuse a lot of people, so I'm sure that's why AER was introduced.

Especially those on here who seem to think AER isn't "fit for purpose"

Whether an account pays interest monthly or annually, if the AER is the same and any deposits/withdrawals the same, the interest you get after 12 months will be the same. If you close it part way through the year (assuming no penalties) then you'd get the same interest.

AER was introduced to allow people to compare products easily, often prior to it's introduction you'd get banks etc quoting whatever interest rate version that made it look most favourable (e.g. loans quoted on gross, credit cards on monthly equivalents etc)

I'm afraid this is wholly inaccurate. If you close part way through the year, you most definitely will NOT receive the same amount of interest in a monthly versus an annual account. It won't be much different, but it will be different. This should be obvious if consider what happens if you close an account after a month. Let's look at the Paragon Double Access account as an example. Annual rate (and AER of the monthly account) is 4.75%. The gross rate for the monthly account is 4.65%. When left to compound over a full year this will leave you with 4.75%.

But if you close after a month, then with a monthly account, you've received 4.65% for a month (let's suppose 4.65%/12 for simplicity, although in reality, it would be 4.65% * days in the month / 365).

With an annual account closed after a month, you'd earn 4.75%/12. An annual paying account would therefore clearly receive more interest than the monthly account if closed after a month.

On my Marcus online savings account (monthly interest option) the interest is "calculated daily and paid monthly" .  The monthly interest added matches the amount I calculated using compounding the daily interest over the number of days since the previous month. So I think it matches the annual option apart from some rounding errors on the pennies each month which seem to always round up. 

Calculating interest isn't the same as compounding interest.  

It's standard practice to calculate interest daily based on the balance in the account at the end of the day.  For a monthly account, that daily interest is then added together at the end of the month and added to the account.  

Again, is it a fact that interest isn't compounded daily? You suggested to google. I did:

https://www.investopedia.com/terms/c/compoundinterest.asp#:~:text=Compounding Interest Periods&text=Savings accounts and money market,schedules are daily or monthly.

• Savings accounts and money market accounts: The commonly used compounding schedule for savings accounts at banks is daily.

https://www.theguardian.com/money/2005/jan/20/finance1
There is basically no difference between monthly and annual interest and no difference when it comes to withdrawing capital.

And there are many other search results saying basically the same.

Yes, it is a fact that here in the UK, few if any accounts compound interest daily. You can check the T&Cs of your accounts, which will state how interest is calculated. If it is calculated daily on the closing balance of your account, that means accrued interest that doesn't form part of your balance does not earn interest, so interest only compounds at the frequency it is credited to your account.

Here is a nice link that will enable you to check using AER and gross rates: https://en.wikipedia.org/wiki/Effective_interest_rate#Calculation

Interest compounding annually: AER = gross_rate

Interest compounding monthly:  AER = (1 + gross_rate/12)^12 - 1

Interest compounding daily:  AER = (1 + gross_rate/365)^365 - 1

For the example of Tandem (5.00% AER, 4.89% gross), it cannot compound annually as the AER is not 4.89%, and it cannot compound daily because the AER is not (1 + 0.0489/365)^365 - 1 = 5.01%. It is monthly because AER is (1 + 0.0489/12)^12 - 1 = 5.00%. 

Note that there is negligible difference between monthly and daily with a static balance. Even if you put £85k into a savings account and left it there for just a day, the difference in interest would still only be a few pennies by the end of the month: at 5% gross/AER, £11.64 for monthly compounding vs £11.69 for daily. Though we do have forumites who reconcile interest to the penny who would know.

As we were talking Tandem, from https://www.tandem.co.uk/faq/savings

When is interest paid on the Instant Access Saver?

Interest is calculated daily and compounded into your Instant Access Saver on a monthly basis. The interest will be applied to your account each month on the same date you first funded it. You’ll receive an SMS when your interest has been added and your statement is ready to view in the app.

Thanks, yes, "compounded into your Instant Access Saver on a monthly basis" is an example of such wording. Though it's more common to see wording that doesn't mention compounding explicitly.

Well it was the first I looked at, and because that was the one you were basing your example on with the it cannot compound daily statement.

The quote you provided explicitly states that the interest compounds monthly. For the interest to compound daily, it would have to be added to your actual balance daily; I’m not aware of any UK accounts that do that.

spider42

Mr._H_2 said:

nic_c said:

masonic said:

nic_c said:

masonic said:

grumbler said:

Rollinghome said:

flobbalobbalob said:

spider42 said:

nic_c said:

martinm1 said:

europa said:

Rollinghome said:

europa said:

Rollinghome said:

grumbler said:

Rollinghome said:

flobbalobbalob said:

Rollinghome said:

Justsayit7 said:

Cynergy not doing monthly interest are missing a trick. 4.80%

Could be, but with banks like Cynergy offering new accounts after 11 days, any serious rate hoppers opting for monthly interest would be losing a smidgeon if they kept switching accounts.  

When an annual account is paying 4.80%, a monthly version would only pay 4.70% after a month.  The monthly rate will only match the annual rate if closed on an anniversary.

But then I never understood why anyone would want monthly interest from an easy access account. For a one or more years fixed term I do understand.

4.8% AER pays exactly the same per day as 4.7% monthly . Both accrue the same interest daily and nothing to do with an aniversary.

You clearly don't understand what AER means do you?  I'll give you a clue, it means annual equivalent rate, not daily equivalent rate.

An account paying 4.7% interest monthly will pay a daily applied rate of 4.7%. Compounded each month that will give you the equivalent of 4.8% (AER) after 12 months, and only after 12 months.  If you close the account at one month there will be no compounding so you will only get 4.7%.  You will only get 4.8% AER if held for a full year or following anniversaries.

 '4.8% annual' will pay a daily applied rate of 4.8%  No matter when the account is closed, you will still get 4.8% AER.
If that isn't clear, you need to try googling.

I'm not convinced. Can you google and post a reliable proof, preferably with an example of calculation?

And even if what you say is true, I don't see any significant difference for 4.7% and 4.8%.

1.048^(1/12) = 1.00391

4.7/12 = 0.392

Nope sorry. I've wasted enough time on this already.  It's your money and if you still don't get it, you don't get it. DYOR.

Andy's point above is completely right too.  If you open the Cynergy account with 4.8% AER annual interest, you'd get more than that if you closed the account and so compounded early. Always assuming the new account paid the same rate or better.

We aren't talking big numbers here, unless a very large sum is held in the account.  The applied rate for monthly is just 0.10% lower, but interest received will be a little bit lower if held for less than 12 months or another anniversary of the account.  Annual Equivalent Rate means you get that rate if held for a year.

This is incredibly useful info. I am relatively savvy with these things, and even i thought monthly interest (with the same AER) was equivalent regardless of when the money is withdrawn. So many thanks for alerting me and others to this important anomaly !

That's good.  It's not a lot of money to worry about unless the balance is large but just as well in our pocket as in the bank's.  And it might be why so many banks are offering monthly only accounts now.

Indeed. If i were a bank, that's exactly what i would do. AER clearly isn't fit for purpose. 

It is fit for purpose as it allows comparing different products to normalise them over one year.  Compound interest seems to confuse a lot of people, so I'm sure that's why AER was introduced.

Especially those on here who seem to think AER isn't "fit for purpose"

Whether an account pays interest monthly or annually, if the AER is the same and any deposits/withdrawals the same, the interest you get after 12 months will be the same. If you close it part way through the year (assuming no penalties) then you'd get the same interest.

AER was introduced to allow people to compare products easily, often prior to it's introduction you'd get banks etc quoting whatever interest rate version that made it look most favourable (e.g. loans quoted on gross, credit cards on monthly equivalents etc)

I'm afraid this is wholly inaccurate. If you close part way through the year, you most definitely will NOT receive the same amount of interest in a monthly versus an annual account. It won't be much different, but it will be different. This should be obvious if consider what happens if you close an account after a month. Let's look at the Paragon Double Access account as an example. Annual rate (and AER of the monthly account) is 4.75%. The gross rate for the monthly account is 4.65%. When left to compound over a full year this will leave you with 4.75%.

But if you close after a month, then with a monthly account, you've received 4.65% for a month (let's suppose 4.65%/12 for simplicity, although in reality, it would be 4.65% * days in the month / 365).

With an annual account closed after a month, you'd earn 4.75%/12. An annual paying account would therefore clearly receive more interest than the monthly account if closed after a month.

On my Marcus online savings account (monthly interest option) the interest is "calculated daily and paid monthly" .  The monthly interest added matches the amount I calculated using compounding the daily interest over the number of days since the previous month. So I think it matches the annual option apart from some rounding errors on the pennies each month which seem to always round up. 

Calculating interest isn't the same as compounding interest.  

It's standard practice to calculate interest daily based on the balance in the account at the end of the day.  For a monthly account, that daily interest is then added together at the end of the month and added to the account.  

Again, is it a fact that interest isn't compounded daily? You suggested to google. I did:

https://www.investopedia.com/terms/c/compoundinterest.asp#:~:text=Compounding Interest Periods&text=Savings accounts and money market,schedules are daily or monthly.

• Savings accounts and money market accounts: The commonly used compounding schedule for savings accounts at banks is daily.

https://www.theguardian.com/money/2005/jan/20/finance1
There is basically no difference between monthly and annual interest and no difference when it comes to withdrawing capital.

And there are many other search results saying basically the same.

Yes, it is a fact that here in the UK, few if any accounts compound interest daily. You can check the T&Cs of your accounts, which will state how interest is calculated. If it is calculated daily on the closing balance of your account, that means accrued interest that doesn't form part of your balance does not earn interest, so interest only compounds at the frequency it is credited to your account.

Here is a nice link that will enable you to check using AER and gross rates: https://en.wikipedia.org/wiki/Effective_interest_rate#Calculation

Interest compounding annually: AER = gross_rate

Interest compounding monthly:  AER = (1 + gross_rate/12)^12 - 1

Interest compounding daily:  AER = (1 + gross_rate/365)^365 - 1

For the example of Tandem (5.00% AER, 4.89% gross), it cannot compound annually as the AER is not 4.89%, and it cannot compound daily because the AER is not (1 + 0.0489/365)^365 - 1 = 5.01%. It is monthly because AER is (1 + 0.0489/12)^12 - 1 = 5.00%. 

Note that there is negligible difference between monthly and daily with a static balance. Even if you put £85k into a savings account and left it there for just a day, the difference in interest would still only be a few pennies by the end of the month: at 5% gross/AER, £11.64 for monthly compounding vs £11.69 for daily. Though we do have forumites who reconcile interest to the penny who would know.

As we were talking Tandem, from https://www.tandem.co.uk/faq/savings

When is interest paid on the Instant Access Saver?

Interest is calculated daily and compounded into your Instant Access Saver on a monthly basis. The interest will be applied to your account each month on the same date you first funded it. You’ll receive an SMS when your interest has been added and your statement is ready to view in the app.

Thanks, yes, "compounded into your Instant Access Saver on a monthly basis" is an example of such wording. Though it's more common to see wording that doesn't mention compounding explicitly.

Well it was the first I looked at, and because that was the one you were basing your example on with the it cannot compound daily statement.

The quote you provided explicitly states that the interest compounds monthly. For the interest to compound daily, it would have to be added to your actual balance daily; I’m not aware of any UK accounts that do that.

I'm aware of one - Revolut, see https://www.revolut.com/savings-account-vault/

Interest is added to this account daily, which is insane! I'm an accountant, and became aware of this account when a client whose tax return I was doing had one. He claimed he had been unable to get a tax certificate from them, so we had to add up 365 daily figures to get the total for his tax return! Only pays 3.55% AER though, so not competitive.

masonic

Mr._H_2 said:

nic_c said:

masonic said:

nic_c said:

masonic said:

grumbler said:

Rollinghome said:

flobbalobbalob said:

spider42 said:

nic_c said:

martinm1 said:

europa said:

Rollinghome said:

europa said:

Rollinghome said:

grumbler said:

Rollinghome said:

flobbalobbalob said:

Rollinghome said:

Justsayit7 said:

Cynergy not doing monthly interest are missing a trick. 4.80%

Could be, but with banks like Cynergy offering new accounts after 11 days, any serious rate hoppers opting for monthly interest would be losing a smidgeon if they kept switching accounts.  

When an annual account is paying 4.80%, a monthly version would only pay 4.70% after a month.  The monthly rate will only match the annual rate if closed on an anniversary.

But then I never understood why anyone would want monthly interest from an easy access account. For a one or more years fixed term I do understand.

4.8% AER pays exactly the same per day as 4.7% monthly . Both accrue the same interest daily and nothing to do with an aniversary.

You clearly don't understand what AER means do you?  I'll give you a clue, it means annual equivalent rate, not daily equivalent rate.

An account paying 4.7% interest monthly will pay a daily applied rate of 4.7%. Compounded each month that will give you the equivalent of 4.8% (AER) after 12 months, and only after 12 months.  If you close the account at one month there will be no compounding so you will only get 4.7%.  You will only get 4.8% AER if held for a full year or following anniversaries.

 '4.8% annual' will pay a daily applied rate of 4.8%  No matter when the account is closed, you will still get 4.8% AER.
If that isn't clear, you need to try googling.

I'm not convinced. Can you google and post a reliable proof, preferably with an example of calculation?

And even if what you say is true, I don't see any significant difference for 4.7% and 4.8%.

1.048^(1/12) = 1.00391

4.7/12 = 0.392

Nope sorry. I've wasted enough time on this already.  It's your money and if you still don't get it, you don't get it. DYOR.

Andy's point above is completely right too.  If you open the Cynergy account with 4.8% AER annual interest, you'd get more than that if you closed the account and so compounded early. Always assuming the new account paid the same rate or better.

We aren't talking big numbers here, unless a very large sum is held in the account.  The applied rate for monthly is just 0.10% lower, but interest received will be a little bit lower if held for less than 12 months or another anniversary of the account.  Annual Equivalent Rate means you get that rate if held for a year.

This is incredibly useful info. I am relatively savvy with these things, and even i thought monthly interest (with the same AER) was equivalent regardless of when the money is withdrawn. So many thanks for alerting me and others to this important anomaly !

That's good.  It's not a lot of money to worry about unless the balance is large but just as well in our pocket as in the bank's.  And it might be why so many banks are offering monthly only accounts now.

Indeed. If i were a bank, that's exactly what i would do. AER clearly isn't fit for purpose. 

It is fit for purpose as it allows comparing different products to normalise them over one year.  Compound interest seems to confuse a lot of people, so I'm sure that's why AER was introduced.

Especially those on here who seem to think AER isn't "fit for purpose"

Whether an account pays interest monthly or annually, if the AER is the same and any deposits/withdrawals the same, the interest you get after 12 months will be the same. If you close it part way through the year (assuming no penalties) then you'd get the same interest.

AER was introduced to allow people to compare products easily, often prior to it's introduction you'd get banks etc quoting whatever interest rate version that made it look most favourable (e.g. loans quoted on gross, credit cards on monthly equivalents etc)

I'm afraid this is wholly inaccurate. If you close part way through the year, you most definitely will NOT receive the same amount of interest in a monthly versus an annual account. It won't be much different, but it will be different. This should be obvious if consider what happens if you close an account after a month. Let's look at the Paragon Double Access account as an example. Annual rate (and AER of the monthly account) is 4.75%. The gross rate for the monthly account is 4.65%. When left to compound over a full year this will leave you with 4.75%.

But if you close after a month, then with a monthly account, you've received 4.65% for a month (let's suppose 4.65%/12 for simplicity, although in reality, it would be 4.65% * days in the month / 365).

With an annual account closed after a month, you'd earn 4.75%/12. An annual paying account would therefore clearly receive more interest than the monthly account if closed after a month.

On my Marcus online savings account (monthly interest option) the interest is "calculated daily and paid monthly" .  The monthly interest added matches the amount I calculated using compounding the daily interest over the number of days since the previous month. So I think it matches the annual option apart from some rounding errors on the pennies each month which seem to always round up. 

Calculating interest isn't the same as compounding interest.  

It's standard practice to calculate interest daily based on the balance in the account at the end of the day.  For a monthly account, that daily interest is then added together at the end of the month and added to the account.  

Again, is it a fact that interest isn't compounded daily? You suggested to google. I did:

https://www.investopedia.com/terms/c/compoundinterest.asp#:~:text=Compounding Interest Periods&text=Savings accounts and money market,schedules are daily or monthly.

• Savings accounts and money market accounts: The commonly used compounding schedule for savings accounts at banks is daily.

https://www.theguardian.com/money/2005/jan/20/finance1
There is basically no difference between monthly and annual interest and no difference when it comes to withdrawing capital.

And there are many other search results saying basically the same.

Yes, it is a fact that here in the UK, few if any accounts compound interest daily. You can check the T&Cs of your accounts, which will state how interest is calculated. If it is calculated daily on the closing balance of your account, that means accrued interest that doesn't form part of your balance does not earn interest, so interest only compounds at the frequency it is credited to your account.

Here is a nice link that will enable you to check using AER and gross rates: https://en.wikipedia.org/wiki/Effective_interest_rate#Calculation

Interest compounding annually: AER = gross_rate

Interest compounding monthly:  AER = (1 + gross_rate/12)^12 - 1

Interest compounding daily:  AER = (1 + gross_rate/365)^365 - 1

For the example of Tandem (5.00% AER, 4.89% gross), it cannot compound annually as the AER is not 4.89%, and it cannot compound daily because the AER is not (1 + 0.0489/365)^365 - 1 = 5.01%. It is monthly because AER is (1 + 0.0489/12)^12 - 1 = 5.00%. 

Note that there is negligible difference between monthly and daily with a static balance. Even if you put £85k into a savings account and left it there for just a day, the difference in interest would still only be a few pennies by the end of the month: at 5% gross/AER, £11.64 for monthly compounding vs £11.69 for daily. Though we do have forumites who reconcile interest to the penny who would know.

As we were talking Tandem, from https://www.tandem.co.uk/faq/savings

When is interest paid on the Instant Access Saver?

Interest is calculated daily and compounded into your Instant Access Saver on a monthly basis. The interest will be applied to your account each month on the same date you first funded it. You’ll receive an SMS when your interest has been added and your statement is ready to view in the app.

Thanks, yes, "compounded into your Instant Access Saver on a monthly basis" is an example of such wording. Though it's more common to see wording that doesn't mention compounding explicitly.

Well it was the first I looked at, and because that was the one you were basing your example on with the it cannot compound daily statement.

The quote you provided explicitly states that the interest compounds monthly. For the interest to compound daily, it would have to be added to your actual balance daily; I’m not aware of any UK accounts that do that.

I don't think nic_c was trying to contradict my statement, rather support it with the T&Cs of the easy access savings account being used in the example. Reading T&Cs may be boring, but it's probably easier than performing these calculations, and in this case the clause about how interest is calculated is very clear

BestSeagull

sturgeon said:

Rollinghome said:

jak22 said:

the many who read the forum and dont have time to waste clicking through pages of pointless posts with the chance of missing an actually useful post like a rate change

Don't know about you, but most people here will have heard of a site called Moneyfacts and will be informed by their banks of rate changes.

That's the problem with forums, I owned and ran a big one for 20 years or so, what's fascinating or useful for one person can be unhelpful and boring for another. I had to read a mountain of tedious drivel and whinges over the years.

BTW, did you hear the news that Chip aren't putting their rates up again today. Nothing too exciting otherwise.

Chip aren’t putting up their rates ‘again’, what do you mean? The way this is worded sounds like an announcement?

I think that was just a little bit of dry humour. 

MACKEM99

InvesterJones said:

gt94sss2 said:

refluxer said:

On the subject of bonus rates, Tesco gets listed at 4.35% (including the bonus) so presumably the entry point in a Moneyfacts table depends on whether the rate is automatically applied or not (the Tesco bonus is but Tandem's bonus isn't ?).

Moneyfacts is inconsistent. They list Tandem without the bonus but list Marcus (who advertise with them) with their bonus included.

Doesn't the Marcus bonus automatically apply when you open an account though?

I have to keep going on to Marcus when new bonus arrives to click on to it.

InvesterJones

MACKEM99 said:

InvesterJones said:

gt94sss2 said:

refluxer said:

On the subject of bonus rates, Tesco gets listed at 4.35% (including the bonus) so presumably the entry point in a Moneyfacts table depends on whether the rate is automatically applied or not (the Tesco bonus is but Tandem's bonus isn't ?).

Moneyfacts is inconsistent. They list Tandem without the bonus but list Marcus (who advertise with them) with their bonus included.

Doesn't the Marcus bonus automatically apply when you open an account though?

I have to keep going on to Marcus when new bonus arrives to click on to it.

When you open a new account?

SeriousHoax

What's people's view on Monument App 4.81%

flobbalobbalob

SeriousHoax said:

What's people's view on Monument App 4.81%

I don't like it because you can't install the app on my tablet

ColdIron

Presumably people would install it on their own tablet

flobbalobbalob

ColdIron said:

Presumably people would install it on their own tablet

I knew the grammer was wrong too late 😁 but I have the Tandem app on 2 tablets and a phone as a comparison.