Interest - paid monthly or annually?

wmb194

Where I have the choice I always choose monthly. I like the cash flow and I can spend it sooner rather than later although it's usually invested in the stock market or it'll find its way to another, sometimes better paying, savings account.

JonSalji

cricidmuslibale said:

eskbanker said:

refluxer said:

If the AER is the same for annual vs monthly...

Surely it always will be, that's the whole point of using AER?

Not always entirely true! It is only a very small difference but I’m pretty sure that, from December 1, Coventry Building Society’s Easy Access Saver (online) is going to be paying 2.35% gross 2.35% AER annual interest and 2.32% gross 2.34% AER monthly interest.

I was actually thinking of a product from the Coventry Building Society when I wrote my question. I haven’t maxed the ISA but presumably the slight difference in percentage could be quite significant if maxed out (£20k)

eskbanker

cricidmuslibale said:

eskbanker said:

refluxer said:

If the AER is the same for annual vs monthly...

Surely it always will be, that's the whole point of using AER?

Not always entirely true! It is only a very small difference but I’m pretty sure that, from December 1, Coventry Building Society’s Easy Access Saver (online) is going to be paying 2.35% gross 2.35% AER annual interest and 2.32% gross 2.34% AER monthly interest.

I believe that this anomaly is caused by having to round to two decimal places rather than a conscious attempt to differentiate - the gross monthly equivalent of 2.35% AER would be 2.325%, so they have to choose between offering 2.32% gross (2.3448% AER) or 2.33% gross (2.355% AER), i.e. with numbers in this particular range it's impractical to have an exact equivalence between annual and monthly interest when quoting all percentages to 2DP.

Technically this rounding effect does mean that the annual option is very slightly better in this particular case but it could easily go the other way (and indeed it could do the next time they revise their rates), and there will be other minor factors that could come into play when rounding interest payments to the nearest penny and months of variable lengths, etc.