Compound Interest

MissHap

If a fixed term ISA provider, in this case Oak North, who's current interest rate is 5.07%, pays interest monthly, does this interest compound, meaning in month 1, for every £1000 you invest you now £1050, in month 2 you now have £1153, in month 3....................you see where I'm going with this? 

BoGoF

Assuming the interest is not 'paid away' then yes. That is why interest rates (AER) on monthly paid interest is slightly lower than annual. 

eskbanker

MissHap said:

If a fixed term ISA provider, in this case Oak North, who's current interest rate is 5.07%, pays interest monthly, does this interest compound, meaning in month 1, for every £1000 you invest you now £1050, in month 2 you now have £1153, in month 3....................you see where I'm going with this? 

At the risk of stating the obvious, if you have an account with a published interest rate of 5.07%, then being paid monthly doesn't mean you get 5.07% added every month, it's an annual rate!

So, the monthly rate would be roughly a twelfth of the gross annual rate, i.e. you'd get about 0.4% added each month, therefore £1000, £1004, £1008, etc....

BoGoF said:

Assuming the interest is not 'paid away' then yes. That is why interest rates (AER) on monthly paid interest is slightly lower than annual. 

The AER should be the same (that's the point of quoting AERs, to allow a standardised comparison), but the gross rate will be lower.

Veteransaver

The monthly equivalent rate of 5.07% is 4.95641%

eskbanker

Unless I'm missing something, their rate is now a bit lower anyway:

https://oaknorth.co.uk/personal-savings/fixed-rate-cash-isa/