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Why isn't AER/Gross rate the same as the advertised percentage rate on my savings account?
EasyToAssemble01
Posts: 167 Forumite
Sorry if this is a basic question, but I'm just trying to get my head around the rates on my savings account. The advertised rate is 7% (AER / Gross) with the yearly maximum deposit being £3,600. I would assume that £3,600 + 7% = £252 interest. But, the bank's literature suggests it would be only £136.50 after 12 months.
What am I missing here? What would explain the discrepancy between those two figures. Is it because the later payments haven't matured as much as the earlier ones?
Sorry if this sounds like a silly question, but I can't seem to find anything that explains the concept of savings rates properly.
What am I missing here? What would explain the discrepancy between those two figures. Is it because the later payments haven't matured as much as the earlier ones?
Sorry if this sounds like a silly question, but I can't seem to find anything that explains the concept of savings rates properly.
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Comments
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I am assuming this is a monthly regular saver. The first deposit gets 12 months at 7%, the second 11 months, .... .... .... ...., the last gets 1 month at 7%.1
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https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/#accordion-content-0230858920-4 has an explanation of interest on regular savers, where the balance is accumulated over the term....EasyToAssemble01 said:Sorry if this sounds like a silly question, but I can't seem to find anything that explains the concept of savings rates properly.
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Interest is accrued daily. So at the end of the each day during the year, the balance accrues interest at 0.07/365. As the balance each month is different, later months accrue more interest each day than earlier months.EasyToAssemble01 said:Sorry if this is a basic question, but I'm just trying to get my head around the rates on my savings account. The advertised rate is 7% (AER / Gross) with the yearly maximum deposit being £3,600. I would assume that £3,600 + 7% = £252 interest. But, the bank's literature suggests it would be only £136.50 after 12 months.
What am I missing here? What would explain the discrepancy between those two figures. Is it because the later payments haven't matured as much as the earlier ones?
Sorry if this sounds like a silly question, but I can't seem to find anything that explains the concept of savings rates properly.1 -
Thanks for all the replies. This makes sense now.2
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