INTEREST PAID MONTHLY OR YEARLY

Bobby4puddings

I'm about to put some money in a 1yr fixed cash ISA.
Am I better off going for interest added monthly or yearly?

ColdIron

If the AER is the same (and it probably is) there is no interest advantage

Silverbullet036

Not sure it really matters if its left in there for the whole year. Should work out the same

BooJewels

As already said, if left in the fix, it makes no difference over the length of the term. 

But if you want access to the interest over the life of the fix, as a monthly income and it's one of the fixes that will allow it to be paid away into another nominated account, then monthly gives you some funds as you go along - but on balance, you'll get a bit less interest, depending on what you to choose to do with it. 

I have some of my fixes pay monthly, then I put that interest into a regular saver at a slightly higher rate of interest, so I gain a bit on those. 

boingy

Given a choice, I always opt for monthly interest even if it is going to stay in the same account. It makes no difference to the end result but it's nice to see it accumulating month by month.

Bostonerimus1

If you have a choice between 100% interest annually or 100/12% interest monthly you will get more for the monthly approach. If you further decrease the time period of interest payment your resulting ending amount will tend to "e" times your starting amount ie 2.718...for lower interest rates the difference is far less eg for 6% annual interest you'll end up with 1.06 times your starting amount and after a year at 0.5% interest added monthly you'll end up with 1.061678 times your starting amount.

So it's critical you understand exactly what rate is being used in either case. Bankers will generally make the monthly vs annual interest payments equivalent and give the same AER for both options.

ColdIron

If the AER is the same (and it almost always is) and the interest is retained within the account then the interest will be the same regardless of the interest frequency

Olinda99

if you opt to have the interest paid into the account then it will retain its tax free status going forward.

f you opt to have the interest paid a way to an external account it will lose its tax free status

boingy

Bostonerimus1 said:

If you have a choice between 100% interest annually or 100/12% interest monthly you will get more for the monthly approach. 

I've never seen an account that offers that. All the ones I've seen with a choice quote different rates for monthly and yearly but the same AER.

Bostonerimus1

boingy said:

Bostonerimus1 said:

If you have a choice between 100% interest annually or 100/12% interest monthly you will get more for the monthly approach. 

I've never seen an account that offers that. All the ones I've seen with a choice quote different rates for monthly and yearly but the same AER.

yes, bankers aren't stupid

Stubod

boingy said:

Given a choice, I always opt for monthly interest even if it is going to stay in the same account. It makes no difference to the end result but it's nice to see it accumulating month by month.

...this....