Mthly or Annual interest?

Protex

Hi,

I'm looking to open a one year fixed rate cash ISA and I have the option of choosing monthly interest or annual interest...Not sure which one to choose?...

Bigwheels1111

It does not matter as long as the interest is left in the account until the end of the year.

Could you not get a better rate on a standard savings acc.

Do you get the £1000 tax free savings.

phillw

Protex said:

Hi,

I'm looking to open a one year fixed rate cash ISA and I have the option of choosing monthly interest or annual interest...Not sure which one to choose?...

It depends on the rate you get for monthly/annual interest and how they calculate it.

For example, when I plugged the santander esaver rates into https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php, then I got slightly more for monthly than I would for yearly. But I don't know if santander calculate the interest in the exact same way.

refluxer

Protex said:

Hi,

I'm looking to open a one year fixed rate cash ISA and I have the option of choosing monthly interest or annual interest...Not sure which one to choose?...

If the quoted AERs are the same for each option, then you'll get roughly the same amount of interest whichever you choose, provided you have the interest from the monthly option paid into the same account.

For non-ISA accounts, people sometimes choose the monthly option because they want to spread the interest over multiple tax years but this obviously isn't an issue with an ISA. Those who want the interest as income or to pay it away into a higher-earning account may also choose the monthly option although when you do this, you just have to bear in mind you'll only achieve the (lower) gross rate from the account and not the AER.

All other things being equal, I often choose the monthly option because it's nice to see the savings grow, plus you always know roughly what's in the account at any one time, without the need to calculate it

Millyonare

Same. I much prefer monthly interest. It's good motivation to watch the wealth grow bigger every few weeks.

cricidmuslibale

I also much prefer monthly interest if available because, in an easy access account, it gives you the choice every month of either taking out the interest to supplement your income or leaving the interest in the account to compound! I do get ever so slightly annoyed that some fixed rate accounts have a monthly interest option but only allow the interest to be paid away to another account, thus preventing any compounding! That’s when I reluctantly choose annual interest, only because it allows for compounding!

wmb194

cricidmuslibale said:

I also much prefer monthly interest if available because, in an easy access account, it gives you the choice every month of either taking out the interest to supplement your income or leaving the interest in the account to compound! I do get ever so slightly annoyed that some fixed rate accounts have a monthly interest option but only allow the interest to be paid away to another account, thus preventing any compounding! That’s when I reluctantly choose annual interest, only because it allows for compounding!

But you can compound the interest in another, possibly better, account... I always go monthly. For me cash flow is king.

Snowflake

With 85k in a savings account, whether or not one chooses monthly or annual interest, if the interest remains in said account will it be the amount over the 85k that is not protected and therefore preferable to move it elsewhere?? If that makes sense, grateful for comment.

wmb194

Snowflake said:

With 85k in a savings account, whether or not one chooses monthly or annual interest, if the interest remains in said account will it be the amount over the 85k that is not protected and therefore preferable to move it elsewhere?? If that makes sense, grateful for comment.

Yes, correct, although if the institution fails they day before the annual interest is due to be paid it'll be rather a lot more painful than if you've had the monthly interest paid away. This is why some people suggest that you should keep balances below £85k by an appropriate amount to ensure that any accrued interest is covered.