Do Raisin Bank understand the difference between AER and Gross interest rate?

dalts99

The headline AER figure and calculated interest for a 2 year fixed rate savings are displayed thus:

Which isn't my idea of AER.
When you drill into the "view details" they seem to get it right:


A little worrying that they can't get this right?

Middle_of_the_Road

Hopeless..... they should stick to currant accounts

AmityNeon

It appears Raisin's approximations use the AER figure, even for accounts paying simple interest.

On-the-coast

1.0525 compounded for two years = £107.8 of interest. (actually £107.75)
1.0539 plain interest not compounded in second year = £53.9 of interest per year = £107.8
I'm not sure i see the problem? as both methods give the same interest payable.

BTW i think Raisin is Sharia banking? 
Their website say they cant offer interest rates... specifically saying they don't offer AER's just expected profits - but then they go on to list a bunch of AER's against their sharia savings accounts.
e.g. see here:
https://www.raisin.co.uk/banking/al-rayan-faq/
I guess that's because they have to offer equivalent AER by UK rules?
But are they somehow doing it a little different?

AmityNeon

On-the-coast said:

1.0525 compounded for two years = £107.8 of interest. (actually £107.75)
1.0539 plain interest not compounded in second year = £53.9 of interest per year = £107.8
I'm not sure i see the problem? as both methods give the same interest payable.

The green "+ £105.00" approximation calculated on Raisin's web interface. Raisin uses the AER instead of gross, even for accounts paying simple interest.

On-the-coast said:

BTW i think Raisin is Sharia banking?

Raisin is not a bank and doesn't offer any savings products directly. They're a 'savings marketplace' allowing customers to apply for and manage savings accounts from their 35+ partner banks via one single login.

grumbler

AmityNeon said:

On-the-coast said:

1.0525 compounded for two years = £107.8 of interest. (actually £107.75)
1.0539 plain interest not compounded in second year = £53.9 of interest per year = £107.8
I'm not sure i see the problem? as both methods give the same interest payable.

The green "+ £105.00" approximation calculated on Raisin's web interface. Raisin uses the AER instead of gross, even for accounts paying simple interest.

I don't understand. If 'simple interest' means that they pay 2*5.39%=10.78% at the end of 2 years, this is exactly £107.80. And, recalculated to AER, this becomes 5.25%.

AmityNeon

grumbler said:

AmityNeon said:

On-the-coast said:

1.0525 compounded for two years = £107.8 of interest. (actually £107.75)
1.0539 plain interest not compounded in second year = £53.9 of interest per year = £107.8
I'm not sure i see the problem? as both methods give the same interest payable.

The green "+ £105.00" approximation calculated on Raisin's web interface. Raisin uses the AER instead of gross, even for accounts paying simple interest.

I don't understand. If 'simple interest' means that they pay 2*5.39%=10.78% at the end of 2 years, this is exactly £107.80. And, recalculated to AER, this becomes 5.25%.

Indeed, the account pays simple interest at 5.39% gross, so how do you think Raisin is calculating +£105.00? It's not just this account either; Raisin appears to always calculate their interest approximations using the AER, but the AER is not a figure that should be used in calculating gross interest.

grumbler

Where do you see £105? I see £1,107.80, i.e. £107.80 interest, that corresponds to 5.39% gross and means 5.25% AER.

EthicsGradient

grumbler said:

Where do you see £105? I see £1,107.80, i.e. £107.80 interest, that corresponds to 5.39% gross and means 5.25% AER.

It's easy to miss - in the first picture, below "The headline AER figure and calculated interest for a 2 year fixed rate savings are displayed thus:", and between the FSCS and "view details" cells.

AmityNeon

grumbler said:

Where do you see £105? I see £1,107.80, i.e. £107.80 interest, that corresponds to 5.39% gross and means 5.25% AER.

The whole point of this thread was to contrast Raisin's (dynamic) calculative error compared to the correct (static) information revealed when "View details" is clicked. £105.00 isn't @dalts99's idea of 5.25% AER, but £107.80 is.