Fixed savings accounts

mummy_bear_4

I want to ask is it best on a fixed 1yr savings account to get monthly interest instead of the interest at the end of the fixed year, so that it can be, I presume, left in the savings account & increase each month, to then make more interest over the year.. better than just accumulating the interest at maturity after the 1 year? Does that make sense.. 🥴

InvesterJones

mummy_bear_4 said:

I want to ask is it best on a fixed 1yr savings account to get monthly interest instead of the interest at the end of the fixed year, so that it can be, I presume, left in the savings account & increase each month, to then make more interest over the year.. better than just accumulating the interest at maturity after the 1 year? Does that make sense.. 🥴

It does make sense, which is why the gross annual interest is usually higher than the gross monthly interest, so that after compounding is taken into consideration the monthly does not end up earning more.

In short, compare the AER (annual equivalent rates) rather than gross, to find out which will give the most interest after compounding. In many cases it'll be the same.

steveksullivan

mummy_bear_4 said:

I want to ask is it best on a fixed 1yr savings account to get monthly interest instead of the interest at the end of the fixed year, so that it can be, I presume, left in the savings account & increase each month, to then make more interest over the year.. better than just accumulating the interest at maturity after the 1 year? Does that make sense.. 🥴

I think what you are trying to say is 'can you beat the quoted interest rate by taking monthly interest and leaving it in the account'.

As @InvesterJones rightly says, you will see two rates quoted for monthly interest .... the (slightly lower) gross rate - which is what you will receive per month  - and the AER, which is the effective rate you would receive,if interest is left in the account to accumulate more interest.

This AER is the same for monthly and annual interest - so it is not any ....

.. better than just accumulating the interest at maturity after the 1 year?

eskbanker

A very similar question came up yesterday and there may sometimes be very minor variations between total return from monthly and annual interest, with one provider quoting slightly different AERs, largely due, I believe, to rounding:

https://forums.moneysavingexpert.com/discussion/6402177/interest-paid-monthly-or-annually#latest