Interest on maturity vs monthly compound?

FlaatusGoat

Title says it all really. I have a pot of money currently in an instant access and to boost my interest I thought I would take a lump some of it out and put it into a 6 month fix at a higher rate. However, those fixes like the Atom bank one typically only pay out the interest after the fixed term. Am I losing out on compound interest here, for instance with the instant access the interest is paid monthly, so this interest plus the original amount will go up and up. Or am I getting this wrong?

eskbanker

Provided the AER is the same for each option (as it should be), then there is no difference in the total interest you're paid, as the rate used for monthly payments is set to be lower than that used for one-off maturity payments, so that compounding brings both options to parity.

Edit: when comparing, the fact that maturity interest will all be paid in the next tax year may make a difference for some.

surreysaver

An AER rate is quoted for accounts paying interest monthly. That is the rate you get when taking compounding interest into account

JohnWinder

You can likely work it yourself with this tool: https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php
 Or do it more hands-on this way: https://spreadsheetplanet.com/compound-interest-formula-excel/