monthly vs annual interest

refluxer

Cisco001 said:

Personally always pick monthly if there is a choice.
My though is what if the bank go burst before paying annual interest?
Without reading FCSC details, I just assume they only compensate the money in the account at the time.

As far as I'm aware, you're covered for the balance and any interest due (so interest that hasn't been credited), up to the £85k FSCS limit.

SiliconChip

Of course, the OP may not need to spread the money across multiple accounts at all if they intend to buy the new house within 6 months, they can simply pick the single best account for their purposes and be covered by Temporary High Balance protection.

https://www.fscs.org.uk/making-a-claim/claims-process/temporary-high-balances/

misscatt

Reed_Richards said:

@misscatt, can you give an example of an easy access account that does this? 

"At the end of the 24 month term, which is also known as ‘maturity’, "
https://www.skipton.co.uk/savings/easy-access/base-rate-tracker?utm_source=money.co.uk&utm_medium=aggregator&utm_content=listings_desktop&utm_campaign=base%20rate%20tracker%20%20&dclid=CKjwnLrQ_YIDFRbrGwodNcQIIQ

eskbanker

misscatt said:

Can you clarify why some of the accounts use the term 'maturity'? This makes me think that its some sort of inbuilt fixed rate because you dot get the interest until the maturity date *- which would not be the same as the date I choose to close the account?

The Skipton account you've quoted as an example pays interest either annually or monthly, rather than (only) at maturity as such, so 'maturity' doesn't really have any significance in the context of the discussion about closure before interest is due to be paid - it just denotes the date when the account's interest rate is no longer pegged to the base rate.

misscatt

eskbanker said:

misscatt said:

Can you clarify why some of the accounts use the term 'maturity'? This makes me think that its some sort of inbuilt fixed rate because you dot get the interest until the maturity date *- which would not be the same as the date I choose to close the account?

The Skipton account you've quoted as an example pays interest either annually or monthly, rather than (only) at maturity as such, so 'maturity' doesn't really have any significance in the context of the discussion about closure before interest is due to be paid - it just denotes the date when the account's interest rate is no longer pegged to the base rate.

I am perhaps then misunderstanding what this means.
"Annual interest is earned daily and paid on the anniversary of account opening."

AmityNeon

misscatt said:

Reed_Richards said:

@misscatt, can you give an example of an easy access account that does this?

"At the end of the 24 month term, which is also known as ‘maturity’, "
Base Rate Tracker - Skipton

The full quotation:

At the end of the 24 month term, which is also known as ‘maturity’, unless you tell us otherwise, your account will automatically transfer into a new easy access account, which has a variable rate of interest and doesn’t track the Bank of England Base Rate. We’ll contact you before maturity and you can find out more about the maturity process in condition 8.0 of the further terms and conditions.

So in this context, the term 'maturity' relates to the account being transferred to a different type of account, i.e. one that doesn't track the Bank of England Base Rate.

The payment of interest (unrelated to the above) is specified as follows:

What is the interest rate?

• Annual Interest: 5.06% gross pa/AER variable
  Annual interest is earned daily and paid on the anniversary of account opening.
• Monthly Interest: 4.95% gross/5.06% AER variable
  Monthly interest is earned daily, and each month’s interest is paid on the same date your account was opened, or the last day of the month if shorter.

Savings Account Terms and Conditions
9. Ending your agreement

• If your savings account is closed, we’ll pay interest at the rate that applies to it up to the day it is closed.

If you opt for annual interest, each day you'll earn the daily equivalent of 5.06% gross annual interest, and if you close the account after six months, you'll receive accrued interest totalling approximately half of 5.06% in interest. A more precise calculation:

Balance * (5.06% / 365) * (number of days held)

Exact calculation depends on how Skipton BS handles leap years.

If you opt for monthly interest, each day you'll earn the daily equivalent of 4.95% gross annual interest. The approximate monthly rate is 4.95% / 12 = 0.4125%. Approximate compounding:

12 months: 1.004125 ^ 12 = 1.0506 (5.06% = AER)
6 months:  1.004125 ^ 6  = 1.0250 (2.50%)

In practice, the varying number of days each month means the compounded values will also vary slightly. By only compounding for six months, monthly interest results in a lower nominal return because the lower gross rate assumes compounding over 12 equal months.

eskbanker

misscatt said:

eskbanker said:

misscatt said:

Can you clarify why some of the accounts use the term 'maturity'? This makes me think that its some sort of inbuilt fixed rate because you dot get the interest until the maturity date *- which would not be the same as the date I choose to close the account?

The Skipton account you've quoted as an example pays interest either annually or monthly, rather than (only) at maturity as such, so 'maturity' doesn't really have any significance in the context of the discussion about closure before interest is due to be paid - it just denotes the date when the account's interest rate is no longer pegged to the base rate.

I am perhaps then misunderstanding what this means.
"Annual interest is earned daily and paid on the anniversary of account opening."

That's stating that interest will be paid a year after opening, and then again two years after opening - what are you understanding it to mean?

misscatt

eskbanker said:

misscatt said:

eskbanker said:

misscatt said:

Can you clarify why some of the accounts use the term 'maturity'? This makes me think that its some sort of inbuilt fixed rate because you dot get the interest until the maturity date *- which would not be the same as the date I choose to close the account?

The Skipton account you've quoted as an example pays interest either annually or monthly, rather than (only) at maturity as such, so 'maturity' doesn't really have any significance in the context of the discussion about closure before interest is due to be paid - it just denotes the date when the account's interest rate is no longer pegged to the base rate.

I am perhaps then misunderstanding what this means.
"Annual interest is earned daily and paid on the anniversary of account opening."

That's stating that interest will be paid a year after opening, and then again two years after opening - what are you understanding it to mean?

I am concerned that it means if I take out my money at 6 months I will be penalised or not able to have my interest until a year has passed.

eskbanker

misscatt said:

eskbanker said:

misscatt said:

eskbanker said:

misscatt said:

Can you clarify why some of the accounts use the term 'maturity'? This makes me think that its some sort of inbuilt fixed rate because you dot get the interest until the maturity date *- which would not be the same as the date I choose to close the account?

The Skipton account you've quoted as an example pays interest either annually or monthly, rather than (only) at maturity as such, so 'maturity' doesn't really have any significance in the context of the discussion about closure before interest is due to be paid - it just denotes the date when the account's interest rate is no longer pegged to the base rate.

I am perhaps then misunderstanding what this means.
"Annual interest is earned daily and paid on the anniversary of account opening."

That's stating that interest will be paid a year after opening, and then again two years after opening - what are you understanding it to mean?

I am concerned that it means if I take out my money at 6 months I will be penalised or not able to have my interest until a year has passed.

No, it just means that this account is the same as any other that pays interest annually, in that if you close it after, say, six months, then you'll be paid the interest that you'd accrued up to that point, i.e. roughly half.

Angelica123

misscatt said:

eskbanker said:

misscatt said:

eskbanker said:

misscatt said:

Can you clarify why some of the accounts use the term 'maturity'? This makes me think that its some sort of inbuilt fixed rate because you dot get the interest until the maturity date *- which would not be the same as the date I choose to close the account?

The Skipton account you've quoted as an example pays interest either annually or monthly, rather than (only) at maturity as such, so 'maturity' doesn't really have any significance in the context of the discussion about closure before interest is due to be paid - it just denotes the date when the account's interest rate is no longer pegged to the base rate.

I am perhaps then misunderstanding what this means.
"Annual interest is earned daily and paid on the anniversary of account opening."

That's stating that interest will be paid a year after opening, and then again two years after opening - what are you understanding it to mean?

I am concerned that it means if I take out my money at 6 months I will be penalised or not able to have my interest until a year has passed.

You won't be penalised. To get the interest before the year anniversary, you need to close the account early. The only drawback of doing that is if your current savings account is no longer open to new customers once you close it, and the other products on offer are less competitive. I guess that won't matter so much if you won't have much savings after you buy the new house.

The other thing you will have to consider is that some of the interest will be liable to tax as you will earn over the personal savings allowance. Monthly interest may then be useful to split the interest over 2 tax years. It would also be useful to max out your ISA allowance too.