Interest not compounding- Santander Edge Saver 7%

fromscratch

Hello, I am wondering if someone could advise me as I think something is wrong with the interest calculations on my account. I opened it with £4k on 7% AER. Month 1 I got £21.49 in interest but the next two months I got £22.97- the exact same amount for both months. Surely this should be compounding each month? Am I incorrect?

Has this happened to anyone else? I am having difficulty getting through to the call centre due to working hours, and their chat never puts me through to a real person before shutting itself down. 

Thanks guys, I appreciate your help

noitsnotme

It only pays interest on up to £4K.  The interest is over that so won’t earn any additional interest.  You’re better off transferring the interest out.

fromscratch

Thank you so much for taking the time to answer me!

But what? Lol, I thought it paid interest on the interest, is that not how it is supposed to work? For example in my CHIP account I can put in the maximum and then I will get paid interest on the balance (which includes interest from the month before). Wild that it differs between banks when they are quoting AER etc

fromscratch

@ohitsonlyme thank you, Sandi have replied finally and confirmed what you have said 

allegro120

It would compound if you leave a room for compounding (i.e. your balance is below the maximum), but that won't make any sense.  I "compound" it manually by transferring monthly interest to other well paying accounts.

[Deleted User]

fromscratch said:

Thank you so much for taking the time to answer me!

But what? Lol, I thought it paid interest on the interest, is that not how it is supposed to work? For example in my CHIP account I can put in the maximum and then I will get paid interest on the balance (which includes interest from the month before). Wild that it differs between banks when they are quoting AER etc

No, if an account only pays interest up to a certain value (Virgin have a similar one, theirs is at 1k) then there is no compounding whatsoever.
Best to simply take the interest every month and use it elsewhere.

AmityNeon

fromscratch said:

But what? Lol, I thought it paid interest on the interest, is that not how it is supposed to work? For example in my CHIP account I can put in the maximum and then I will get paid interest on the balance (which includes interest from the month before). Wild that it differs between banks when they are quoting AER etc

What Chip maximum? The Edge Saver specifically does not pay interest on any amount above £4,000 regardless of where the funds originate. AER figures are purely for comparative purposes and have no bearing on actual interest calculations.

pscotty

re "I got £21.49 in interest but the next two months I got £22.97- the exact same amount for both months." - but some months are longer than others

Exodi

fromscratch said:

Thank you so much for taking the time to answer me!

But what? Lol, I thought it paid interest on the interest, is that not how it is supposed to work? For example in my CHIP account I can put in the maximum and then I will get paid interest on the balance (which includes interest from the month before). Wild that it differs between banks when they are quoting AER etc

It would pay interest on the interest, if the balance remained <= £4k. The rules are quite clear.

This also isn't a special exception unique to Santander, it's how you'd expect most financial products to work.

Once interest is paid, it becomes part of the balance and should be treated as such.

Santander Edge (which pays 6.78% gross) would return about £22.60 on average per month with a full £4k balance (and the reason the figures vary are because each month has a different number of days in them).

However, I would be minded to agree that seeing the AER may be confusing to customers who deposit the full £4k, where no compounding can occur (so the gross rate would apply to them). I'm sure this is a regulatory thing as opposed to banks trying to mislead people and can be solved by better financial education.

slinger2

(£4000*6.78%/366)*29 = £21.49
(£4000*6.78%/366)*31 = £22.97

PixelPound

Exodi said:

fromscratch said:

Thank you so much for taking the time to answer me!

But what? Lol, I thought it paid interest on the interest, is that not how it is supposed to work? For example in my CHIP account I can put in the maximum and then I will get paid interest on the balance (which includes interest from the month before). Wild that it differs between banks when they are quoting AER etc

It would pay interest on the interest, if the balance remained <= £4k. The rules are quite clear.

This also isn't a special exception unique to Santander, it's how you'd expect most financial products to work.

Once interest is paid, it becomes part of the balance and should be treated as such.

Santander Edge (which pays 6.78% gross) would return about £22.60 on average per month with a full £4k balance (and the reason the figures vary are because each month has a different number of days in them).

However, I would be minded to agree that seeing the AER may be confusing to customers who deposit the full £4k, where no compounding can occur (so the gross rate would apply to them). I'm sure this is a regulatory thing as opposed to banks trying to mislead people and can be solved by better financial education.

Some leave less than the full amount in because they don't want the "hassle" of moving interest out. The OP could reduce their balance to £3738 and then the interest will compound.