Annual Interest vs Montly Interests

cisko65

I keep forgetting the difference between annual and montly interest.

The Aldermore Easy Access saving account has Gross Annual	Interest 0.50%, Gross Monthly 0.50% and	0.50% AER*

Thanks.

eskbanker

If they pay 0.5% regardless of whether it's monthly or annually then you'd earn fractionally more interest if taking it monthly because of compounding - this effect will normally result in different rates being shown for monthly versus annual/AER but at this level of interest the difference is negligible.  By my quick reckoning, you'd earn about an extra penny a month on a £10,000 balance when taking the monthly interest option versus the annual one (depending on how they round their interest payments)!

Aceace

In this case it seems that it makes no difference whether you choose monthly or annual interest as either way you get 0.5% AER (Annual Equivalent Rate). I.e. if you invest £1,000 for exactly 1 year and choose annual interest you will receive £5 at the end of that year. If you choose monthly interest for the same investment and allow your monthly payments to be reinvested (compounded) then at the end of the year your total interest would also be exactly £5.
Monthly interest is more useful if you want a regular income from your savings. You would receive slightly less than one twelfth of £5 per month. So, at the end of the year you would have received slightly less than £5 because your monthly payments were not compounded. 

cisko65

Sorry I did copy and paste from the bank website and it didn't work. Here I go again:

I keep forgetting the difference between annual and montly interest. Aldermore easy access saving account offers
0.50% Gross Annual or 0.50% Gross Monthly. AER is 0.50%
Thanks.

eskbanker

cisko65 said:

Sorry I did copy and paste from the bank website and it didn't work. Here I go again:

I keep forgetting the difference between annual and montly interest. Aldermore easy access saving account offers
0.50% Gross Annual or 0.50% Gross Monthly. AER is 0.50%
Thanks.

What more do you want to know, other than what was covered in the two replies from posters who didn't appear to have any difficulty interpreting your original?

Granted, we've made different assumptions about exactly how Aldermore will resolve the inconsistency (that they can't pay exactly 0.50% gross monthly and also exactly 0.50% AER) - they'll effectively either lower the former or increase the latter, but either way round the bottom line is that any infinitesimal variance between total monthly and annual interest will be completely trivial....

Retire2021

If you had £87,000 the difference over 12 months, assuming the interest is calculated monthly, is 99.83p

cisko65

Thanks to the three of you for the clear replies.
And sorry for my post following my thread. Didn't see you had already replied.