Annual and Monthly Interest - How to calculate annual when know monthly and vice versa

littlemoney

For some savings accounts I have some accounts with an annual rate of interest, for others I have opted for monthly rate of interest. I want to compare the rates of all my accounts but I don't know how to do the calculation to get a level playing field so I know the annual rate for all my accounts.

e.g. For one account I noted  the annual is 6.02% AER and the monthly is 5.86% which equates to 6.02% AER. I want to know this for all my accounts as the newer ones are monthly and I can't remember the annual.

There is probably something simple I can do in a spreadsheet or a calculator but  I don't know what. Thanks.

eskbanker

AER is the level playing field, and is the standardised measure used to compare monthly versus annual interest by factoring in the effect of compounding, so the AER figure is really the one you need for all your accounts - if an account pays interest annually then that rate is the AER.

https://www.moneysavingexpert.com/banking/interest-rates/#save

Rollinghome

littlemoney said:

For some savings accounts I have some accounts with an annual rate of interest, for others I have opted for monthly rate of interest. I want to compare the rates of all my accounts but I don't know how to do the calculation to get a level playing field so I know the annual rate for all my accounts.

e.g. For one account I noted  the annual is 6.02% AER and the monthly is 5.86% which equates to 6.02% AER. I want to know this for all my accounts as the newer ones are monthly and I can't remember the annual.

There is probably something simple I can do in a spreadsheet or a calculator but  I don't know what. Thanks.

When the interest is paid monthly, then if you have the account open for a full year you will get 6.02%.  If you only keep it there for a month, you will get just 5.86% because it won't been there long enough to compound any interest.  

For something in between, if you don't want to do the maths, then the simplest way is to use a tool like https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php.  As you get closer to a full year you will get closer to 6.02% (assuming the interest is kept in the account and not paid away). - the Annual Equivalent Rate.

For annual interest you would get 6.02% regardless of the time the account is held. But, if it were closed part way through a year, then you would be paid the accrued interest at 6.02%  If you put that interest into another account you would get interest on the interest, i.e. compounding. You can work out how much extra you'd get on the same site.

littlemoney

@eskbanker thanks for that but my problem is that for some accounts I only wrote down the monthly rate eg  5.86 % and didn't make a note of its AER so I need a way of determining it's AER. I know I should have noted it but I didn't at the time.

BooJewels

It should be shown in the account summary box type document that's usually presented to you to save when you open the account.  Even monthly income type accounts show the AER - as that's the standardised method shown so that you can compare accounts, just as @eskbanker explained.

ETA: many savings web sites have a page or document that shows historic interest rates.

littlemoney

@Rollinghome Thanks. It's not the amount of interest I get paid that concerns me but with so many easy access and fixed interest accounts being launched at different rates I am just trying to know if something with a higher rate has been launched compared to what I have already.

ColdIron

littlemoney said:

@eskbanker thanks for that but my problem is that for some accounts I only wrote down the monthly rate eg  5.86 % and didn't make a note of its AER so I need a way of determining it's AER. I know I should have noted it but I didn't at the time.

Play with this?

https://www.candidmoney.com/calculators/annual-equivalent-interest-aer-calculator

BooJewels

Try this then, I knew I'd used one before: https://www.lemonfool.co.uk/financecalculators/apr-rate-converter.php  you'll need to put the monthly interest rate in as the gross figure divided by 12.  It confirms your monthly rate of 5.86 gives an AER of 6.02, so should work for your other accounts

intalex

I think:

AER = (1+Gross/12)^12-1

Gross = 12*((1+AER)^(1/12)-1)

Rollinghome

If you name the accounts some kind soul here will probably know.

EthicsGradient

intalex said:

I think:

AER = (1+Gross/12)^12-1

Gross = 12*((1+AER)^(1/12)-1)

Yes, that works, with AER and Gross as the decimal fraction, not as a percentage - ie, in the OP example, AER is 0.0602, and Gross is 0.0586. You can type that into a spreadsheet; for those using a scientific calculator, "^" is "raised to the power of" (the "x with a superscript y" button).