Trading 212 Cash ISA's GROSS interest rate?

eskbanker

Detail_Merchant said:

freeguy1984uk said:

I just have to post Trading 212's responses to my messages here as they are quite odd, it's as if they don't know what Gross interest means? Or am I the one that's misunderstanding them? It doesn't really matter as I have the answer now from this forum, but still...

MESSAGE 1: I ASKED THEM QUITE SIMPLY "WHAT IS THE GROSS RATE RIGHT NOW, WITH THE AER BEING 5.00%...

"The interest on GBP is 5 % APY. However, we could not share any information related to the enquiries about how the interest is being formulated."

MESSAGE 2: I SIMPLY SAID "IS THE ANSWER 4.88%"...

"You are responsible for calculating and paying any applicable taxes on your profits.
You may also need to declare your profits from financial trading in your tax return according to the tax laws in your country.
For more detailed information, it is recommended to consult with a tax advisor or contact the relevant tax authorities in your country.
However, keep in mind that any income you make from an ISA is tax-free"

Your use of the word 'Gross' seems a little strange to me.
My experience the word Gross for financial matters is usually in contrast to Net, where Gross is the bigger value, and Net is the smaller value, and the difference is whether tax is included or not.
e.g. a item sold for £40 excluding VAT, when VAT was 17.5% might be described as £47 gross or £40 net.

Years ago, when (non-ISA) savings accounts withheld basic rate income tax automatically, then sometimes the interest rates were shown as Gross (before tax was deducted) e.g. 5% and Net (after basic rate was deducted) e.g. 4%.

To me, what you are asking for, is the Simple interest rate, rather than the Compound interest rate.
I think the AER (which is a compound rate) is useful for like-for-like comparisons of savings accounts that pay interest at different frequencies, e.g. daily (such as Trading 212), monthly or annual.

It's quite normal to use 'gross' to refer to the simple interest rate, as opposed to the AER that accounts for compounding - the gross rate is that actually used to pay the interest and so is useful for validating calculations, etc.  In other words, gross is used in this context to differentiate from AER, rather than from 'net'....

Detail_Merchant

eskbanker said:

It's quite normal to use 'gross' to refer to the simple interest rate, as opposed to the AER that accounts for compounding - the gross rate is that actually used to pay the interest and so is useful for validating calculations, etc.  In other words, gross is used in this context to differentiate from AER, rather than from 'net'....

I think it's a hold-over from the old Net vs Gross days.
Linguistically Gross means large, and when contrasted with Net, that makes sense.
But when Gross (used to mean Simple or Non-compounded) is contrasted with AER, the AER will be larger, if interest is being paid more often than annually, so it's a bit counter-intuitive.

The part of the response from Trading 212 where they mention responsibility for paying tax seems to indicate they may have been thinking of this use of the word Gross too.

But the part where they say "we could not share any information related to the enquiries about how the interest is being formulated" just seems like bad customer service, given that their web-site does give exactly that under "How is the daily interest payment calculated?" as slinger2 pointed out.

eskbanker

Detail_Merchant said:

eskbanker said:

It's quite normal to use 'gross' to refer to the simple interest rate, as opposed to the AER that accounts for compounding - the gross rate is that actually used to pay the interest and so is useful for validating calculations, etc.  In other words, gross is used in this context to differentiate from AER, rather than from 'net'....

I think it's a hold-over from the old Net vs Gross days.
Linguistically Gross means large, and when contrasted with Net, that makes sense.
But when Gross (used to mean Simple or Non-compounded) is contrasted with AER, the AER will be larger, if interest is being paid more often than annually, so it's a bit counter-intuitive.

The part of the response from Trading 212 where they mention responsibility for paying tax seems to indicate they may have been thinking of this use of the word Gross too.

If you go to the product information page for pretty much any mainstream savings account, you'll see the gross rate quoted alongside the AER (and the latter will indeed generally be higher), but T212 are a bit of an outlier, only having started to provide savings accounts relatively recently, which may explain both their failure to display both rates and also their apparent inability to answer what others would consider a simple question....

masonic

Investopedia refers to the "stated" or "nominal" interest rate when contrasting with AER. Add that to "simple" and "non-compounded", and I'm rather glad I live somewhere that has agreed upon the single "gross" term.

Yellowman

Is the aforementioned gross rate of 4.88% equivalent to what the rate would be if the interest was withdrawn every month?

masonic

Yellowman said:

Is the aforementioned gross rate of 4.88% equivalent to what the rate would be if the interest was withdrawn every month?

No, every day, since that is how frequently it is credited.

AmityNeon

Some accounts specifically differentiate 'simple interest' to signify an account that does not pay compound interest, even if interest is added to the account balance, e.g. interest added annually in a multi-year fix but only the original balance earns interest throughout the term. This is effectively the same as any multi-year account that pays interest once at maturity (tax implications notwithstanding), resulting in a lower AER figure compared to the simple/nominal/gross rate.

slinger2

Detail_Merchant said:

freeguy1984uk said:

I just have to post Trading 212's responses to my messages here as they are quite odd, it's as if they don't know what Gross interest means? Or am I the one that's misunderstanding them? It doesn't really matter as I have the answer now from this forum, but still...

MESSAGE 1: I ASKED THEM QUITE SIMPLY "WHAT IS THE GROSS RATE RIGHT NOW, WITH THE AER BEING 5.00%...

"The interest on GBP is 5 % APY. However, we could not share any information related to the enquiries about how the interest is being formulated."

MESSAGE 2: I SIMPLY SAID "IS THE ANSWER 4.88%"...

"You are responsible for calculating and paying any applicable taxes on your profits.
You may also need to declare your profits from financial trading in your tax return according to the tax laws in your country.
For more detailed information, it is recommended to consult with a tax advisor or contact the relevant tax authorities in your country.
However, keep in mind that any income you make from an ISA is tax-free"

Your use of the word 'Gross' seems a little strange to me.
My experience the word Gross for financial matters is usually in contrast to Net, where Gross is the bigger value, and Net is the smaller value, and the difference is whether tax is included or not.
e.g. a item sold for £40 excluding VAT, when VAT was 17.5% might be described as £47 gross or £40 net.

Years ago, when (non-ISA) savings accounts withheld basic rate income tax automatically, then sometimes the interest rates were shown as Gross (before tax was deducted) e.g. 5% and Net (after basic rate was deducted) e.g. 4%.

To me, what you are asking for, is the Simple interest rate, rather than the Compound interest rate.
I think the AER (which is a compound rate) is useful for like-for-like comparisons of savings accounts that pay interest at different frequencies, e.g. daily (such as Trading 212), monthly or annual.

Seems a bit strange to me too, but it is widely used in relation to savings accounts. Something like "5.00% AER 4.88% Gross" is quite commonly seen for accounts paying interest monthly.

Johnny-Cage

My T212 showing 5.05% 

Nimb

Johnny-Cage said:

My T212 showing 5.05% 

My T212 cash ISA increased this morning as well from 5% to 5.05%