NS&I - Direct Savings vs Income bonds

ChilliBob

I have a decent amount in the direct saver, just noticed the AER of the income bonds is slightly higher by 0.03%. From what I can see the only difference is that it pays monthly interest as opposed to annual.

Unless in missing something surely this is a better option than the direct saver?! 

ColdIron

That's 2.63% AER, both are 2.60% Gross. The extra 0.03% reflects the return if you reinvested the monthly interest for a year

refluxer

The monthly interest can only be paid away with Income Bonds so I don't understand why they've quoted both a gross and AER figure for that account yet the Direct Saver (where interest is credited to the account) is supposedly 2.60% gross/AER. Have they got these the wrong way round ?

One notable difference between the Direct Saver and Income Bonds is that, for Income Bonds, both the minimum balance and the minimum you can take out each time is £500.

I've held Income Bonds myself in the past but the recent rate rise isn't high enough to tempt me back, with so many easy access accounts now around 3%.

AmityNeon

The Direct Saver only pays interest annually so its AER is also 2.60%; the figure isn't accompanied by either descriptor so both are implied based on the tooltip explanations.

2.63% AER for the Income Bonds is possible because despite interest being paid away, you can just transfer it back into the account.

ColdIron

AmityNeon said:

2.63% AER for the Income Bonds is possible because despite interest being paid away, you can just transfer it back into the account.

Not easily

All deposits must be at least £500, from a UK bank account in your own name.

https://www.nsandi.com/products/income-bonds

AmityNeon

ColdIron said:

AmityNeon said:

2.63% AER for the Income Bonds is possible because despite interest being paid away, you can just transfer it back into the account.

Not easily

All deposits must be at least £500, from a UK bank account in your own name.

https://www.nsandi.com/products/income-bonds

Not easily, but it's still possible, and probably why they advertise the higher AER.

refluxer

AmityNeon said:

The Direct Saver only pays interest annually so its AER is also 2.60%; the figure isn't accompanied by either descriptor so both are implied based on the tooltip explanations.

Ah, well spotted. I'm so used to monthly interest being the norm with the majority of easy access accounts I've opened in recent years that I'd forgotten that you still get some that are restricted to annual only.

ChilliBob

Cheers all, the £500 I hadn't seen. I did set one up with the minimum balance earlier today. I think the only reason to do it would be to avoid annual 'lumps' for tax reasons in some circumstances. This doesn't make a huge difference to me right now so I guess either or really! 

Eco_Miser

AmityNeon said:

ColdIron said:

AmityNeon said:

2.63% AER for the Income Bonds is possible because despite interest being paid away, you can just transfer it back into the account.

Not easily

All deposits must be at least £500, from a UK bank account in your own name.

https://www.nsandi.com/products/income-bonds

Not easily, but it's still possible, and probably why they advertise the higher AER.

They probably advertise the higher AER because it's a legal requirement, even if the AER isn't possible in practice, cf. accounts where interest is paid only on the first £x, so interest on the full amount won't compound.

AmityNeon

Eco_Miser said:

AmityNeon said:

ColdIron said:

AmityNeon said:

2.63% AER for the Income Bonds is possible because despite interest being paid away, you can just transfer it back into the account.

Not easily

All deposits must be at least £500, from a UK bank account in your own name.

https://www.nsandi.com/products/income-bonds

Not easily, but it's still possible, and probably why they advertise the higher AER.

They probably advertise the higher AER because it's a legal requirement, even if the AER isn't possible in practice, cf. accounts where interest is paid only on the first £x, so interest on the full amount won't compound.

It is actually a legal requirement? Some banks do not quote AER figures, such as Union Bank of India, which is preferable if the AER cannot be achieved, otherwise it's a misleading comparison and defeats its purpose as a standardised metric.

Eco_Miser

AmityNeon said:

Eco_Miser said:

AmityNeon said:

ColdIron said:

AmityNeon said:

2.63% AER for the Income Bonds is possible because despite interest being paid away, you can just transfer it back into the account.

Not easily

All deposits must be at least £500, from a UK bank account in your own name.

https://www.nsandi.com/products/income-bonds

Not easily, but it's still possible, and probably why they advertise the higher AER.

They probably advertise the higher AER because it's a legal requirement, even if the AER isn't possible in practice, cf. accounts where interest is paid only on the first £x, so interest on the full amount won't compound.

It is actually a legal requirement? Some banks do not quote AER figures, such as Union Bank of India, which is preferable if the AER cannot be achieved, otherwise it's a misleading comparison and defeats its purpose as a standardised metric.

I don't actually know, which is why I say 'probably', but in the example I gave, while the AER can't be achieved on the full allowable amount, it can be achieved on smaller amounts, so it is serving its purpose as a standardised metric.