Best account for interest - how to calculate

I'm struggling to workout the best option on choosing a savings account depending on the interest rate and how it is calculated.

For example, I have two accounts as follows:

A. Has deposit of £10,000 and interest rate of 3.95%.  Interest is calculated daily and added to account balance monthly.  So in month 2 interest is paid on original deposit plus the interest paid at end of month 1 and so on.  So I see this as a compounding interest account.

B. Has deposit of £10,000 and interest rate of 4.06%.  Interest is calculated daily on cleared account balance, i.e. the £10,000, and is set aide to be paid into account annually on anniversary of opening.  So, I see this as a simple interest account.

I will not add anything further to either account.

I don’t know how to work out which one will earn me most interest over the year.  I am sure this is the same for many people and a calculation and/or explanation on MSE would be really useful to allow us to make the most of our savings.



  • SiliconChip
    SiliconChip Forumite Posts: 1,015
    500 Posts First Anniversary Name Dropper
    You don't need to work it out yourself (beyond a very simple multiplication) and neither do we. Every interest paying account will have a Key Facts document that shows you what the AER (Annual Equivalent Rate) is, which allows you to compare the rates between any accounts, and also gives an estimate for the balance after 12 months for a deposit of £1,000. So if you're depositing £10,000 simply multiply the figure by 10.
    Here's an example Key Facts document for the Shawbrook Easy Access account paying 4.35%.
  • Zanderman
    Zanderman Forumite Posts: 4,419
    Part of the Furniture 1,000 Posts Name Dropper Photogenic
    As SiliconChip says, the answer is probably available on the websites of the banks that offer the accounts.

    And to get the answers any other way the maths isn't too hard, but you first need to know whether the rates quoted are AER or gross.
  • Exodi
    Exodi Forumite Posts: 2,478
    Sixth Anniversary 1,000 Posts Name Dropper Combo Breaker
    As others have said above, virtually all savings products provide illustrations with their products.

    Using the First Direct regular saver as an example:

    "Interest example: If you save £300 every month for 12 months and qualify for the 7.00% AER/Gross p.a. interest rate, you'll earn approximately £136.50 interest (gross)."

    But just so you know how to calculate it yourself, assuming one year time periods, two easy calculations:

    A. 'Calculated daily, accrued monthly' is effectively the same as 'calculated monthly, accrued monthly' and I think it is mainly used to account for the effect of mid-period transactions. If you are not making any mid-period deposits/withdrawals then a simple 'calculated monthly, accrued monthly' formula could be used:

    If you have excel, this can be calculated with the FV function:


    RATE = (0.0395/12)... this is the rate per period
    NPER = 12... this is the number of periods
    PMT = 0... this is how much you're contributing per period (this is expressed as a negative)
    PV = -10000... this is the present value or how much you're starting with (this is expressed as a negative)
    TYPE = 1... this can be either 1 (meaning you're contributing at the start of the period) or 0 (the end).

    This would mean the formula is =FV(0.0395/12,12,0,-10000,1) and would return the result £10,402.23.

    Alternatively if you're not using excel, you can use the traditional formula of:

    Future Value = PV*(1+RATE/NPER)^(NPER*TERM)

    This would mean the formula is 10000*(1+0.0395/12)^(12*1)
    10000*1.040223 = £10,402.23

    B. Simple interest like this is quick to calculate, in your example, it would be £10,000 * (1+0.0406) = £10,406.00.

    --- If you wanted to invest for more/less than a year, times NPER in the first formula or change TERM in the second formula to reflect number of years.
    Know what you don't
  • BPauseMSE
    BPauseMSE Forumite Posts: 2
    First Post
    Thank you so much everyone, your replies are really appreciated - and I do love a formula !
    The product illustrations do show expectation but as I change account in between it gets messy.  For example, Cynergy change interest and I close and reopen new account to get higher rates - they only calculate interest daily on deposit, not deposit and interest.  Other bank calculates interest daily on deposit and any interest added to date - so intuitively this feels like the better deal but due to differing interest rates I was unclear on how to calculate this before Exodi gave formula.  

Meet your Ambassadors


  • All Categories
  • 338.8K Banking & Borrowing
  • 248.6K Reduce Debt & Boost Income
  • 447.5K Spending & Discounts
  • 230.7K Work, Benefits & Business
  • 600.7K Mortgages, Homes & Bills
  • 171K Life & Family
  • 243.9K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.9K Discuss & Feedback
  • 15.1K Coronavirus Support Boards