The Top Easy Access Savings Discussion Area

FLEX24

Newsaver76,
I am starting to get a little concerned now!!:eek:
I've recently started an AA account and have just transferred my lifes savings to it.
As the interest goes to the linked account I suppose this is a Monthly Income account though it doesn't say as much.
So, the AER bit is misleading if not downright wrong. I suppose you can transfer the interest back into the account(losing a couple of days interest each time) but I'd like to see them prove their figure.
I'll come back in a minute as I know a list of M I accounts and will see what they quote.

There is a list of Monthly Income accounts http://www.moneysupermarket.com/savings/.
Click proceed and then select Monthly Income from the option list. They all seem to quote a Higher AER so I guess they are all doing it wrong!!

Mr._H_2

newsaver76 wrote: »

Hi All,

I have a quick question I'm hoping someone could answer for me. I've been following the interest rates for savings account for quite a while and think I understand the basics of calculating interests, differences between Gross and AER rates , etc. etc.

However, I've seen an example tonight that baffles me - the current top rating savings account, from the AA, has an AER of 6.46%, but Gross of 6.28%. Now, I understand that the AER is usually higher than the Gross rate, mainly when interest is being paid monthly, as we (usually) get interest on interest for months 2 and later. Therefore, if the same initial deposit was left in the account from day 1 for a whole year, then the overall balance after this 1 year with monthly interest paid and gross rate, will be the same as the balance after 1 year if the AER rate was paid just once at the end of the year (annually).

However, in the AA case, although the interest is paid monthly, it is paid to a different account, NOT the savings account itself, therefore the balance on the savings account itself is constant throughout the year (assuming no additional withdrawals or deposits). Therefore, how could the AER be possibly be higher than the gross rate in this case? Surely, the AER = Gross in this case, and if the gross is quoted as 6.28%, then isn't the 6.46% AER rate simply not true and is just there so that the AA's account appears to be better than everyone else? (as people are told to use AER for comparisons)...?

Hi Newsaver. It sounds like you understand gross and AER correctly. In that case, if everything you say above about the AA account is accurate, unless I'm mistaken, the AER rate quoted by the AA is wrong. It should be 6.28%.

McAloon

Just a quick question, im quite new to all this and so sorry if my question has an obvious answer. Basically I was just wondering if there is an easy access acount where you can simply walk into a branch and pay money into the account by depoisting some cash or a cheque, like you can for current accounts. Or does this just not happen for easy access accounts. Thanks.

newsaver76

Thanks guys. I wonder if there's a way Martin (or whoever looks after the Top Instant Savings Accounts page in this site) questions this. It's also weird because the fact that the interest has to be paid to another account IS actually mentioned on the Top Instant Savings page here, so I wonder why the AER/Gross difference isn't being questioned by the MSE guys...

http://www.moneysavingexpert.com/savings/savings-accounts-best-interest#instant

JimmyTheWig

It's Annual _Equivalent_ Rate. I.e. it's the equivalent to if interest had been paid annually.
Someone might _want_ to withdraw their interest monthly on an account that gives you the choice. What would the AER be there? Exactly the same as if they didn't withdraw it. Then how could someone compare that account with how you are saying the AA should quote their rates?

AER is the fairest comparison that we have.
If you take money out of the account (including interest payments) then you will get less than that AER over the year. That's the way it works.
Doesn't mean the AER is wrong, you just don't achieve it as you are taking money out.

So if the article says that interest has to be paid into a seperate account then it can be taken as read that you will never achieve the AER (unless the seperate account pays the same as the AA account).
Maybe that point needs making a little more strongly in the article, but the AER is correct.

Mr._H_2

JimmyTheWig wrote: »

Maybe that point needs making a little more strongly in the article, but the AER is correct.

I don't agree. You have no choice about where the interest goes. The interest is paid out into a separate account and therefore by default you will never obtain compound interest. The AER is meant to show you the amount of interest you will earn over a year if you don't withdraw money and the setup of the account means that if you do leave money in there for a year, you won't earn the AER - how can that be anything other than misleading?

Yes, you can pay the interest back into the account, but you will lose a few days' interest in the process. This means that even if you do transfer the interest earned back into the AA account, it is impossible to earn the quoted AER rate on this account. If that doesn't make the AER rate quoted wrong, I don't know what does.

JimmyTheWig

I totally see your point that the AER isn't achievable with this account, but to my (mathematical) mind the AER quoted is still correct. Would be interesting to hear from someone with a legal mind what they think about it.

The rate quoted is perfectly reasonable to use as a comparisson if you want to do what the account is designed for - i.e. withdraw the interest each month.

murphydavid

Mr H. How Interesting
The way I see it is this:
This is the first account I have ever seen that does not allow you to leave your interest in with your capital. You are correct that you can't earn the stated AER so it is misleading.
This account in truth does not seem to actually have an AER, but I think the law says an AER has to be stated in all adverts, and also by law there is a precise method of calculating it and that includes that it must be the rate you will get if you leave all your interest in it.
Now as you can't leave your interest in (and the AA put this in their info in quite large writing) they have done the calculation as "it is the rate you would get if you could leave all your interest in it"
So has the AA broken the Law? If they did not quote an AER they would have done. If they stated the AER as the maximum interest that was accievable then they would not have used the legal farmulae so presumably that would also break the law. Maybe it is against the law to force interest removal? Maybe I don't know the law well enough?
Anyway as far as I can tell, like the window cleaner who calls his company "AAAAAAAAAAAAAAsmith and co" they will do anything they can to be at the top of the list and Martin does continually warn us of this and point them out. So if he missed this trick then I for one forgive him. Its another one I shall be looking out for.

[Deleted User]

saga also has interest going into a linked account. The paperwork came today and we have changed our minds and cancelled applications for dh and myself. Trickery with numbers imo

JimmyTheWig

What I don't understand is what benefit it is to AA to not allow you to have your interest paid into your savings account? Do they not want your money?