Monthly vs Annual Interest Query

Rinchen

I'm planning to open a Vida Savings 95 Day Notice Issue 1 account. I want to maximise the interest and don't need a monthly payment so would choose the annual rate which is 4.85% rather than the monthly interest at 4.75%.

I have two points of enquiry, listed below.

1) It's possible I'll need to withdraw the money within a 12-month period - is this possible on the provision of the notice period, and if so, will the interest be calculated as a proportion of the annual total and will this only be paid on the 1-year anniversary of opening the initial deposit even if the full balance has been transferred earlier?  

Vida Savings' guidance says:

"If you choose to receive interest annually, it will be paid on the anniversary of your initial deposit, or the next Business Day. If you choose monthly interest, it will be paid on the day of the month you first paid into your account or the next Business Day."  

2) If I open an account with the maximum FSCS amount £85k, will the balance go over the protected FSCS threshold at any time? In this case, I imagine the next best option is to transfer £81k to keep the maximum balance within the protected limit and seek another account for the surplus? 

I'd be very grateful for your responses. Many thanks in advance for any thoughts or suggestions you may have.

eskbanker

Accrued interest would be paid on closure, and would only wait for the full year if the account was still open by then.

Whether annual or monthly interest was chosen, it would be prudent to start at £81K rather than £85K if seeking full FSCS protection....

EthicsGradient

Rinchen said:

I'm planning to open a Vida Savings 95 Day Notice Issue 1 account. I want to maximise the interest and don't need a monthly payment so would choose the annual rate which is 4.85% rather than the monthly interest at 4.75%.

I have two points of enquiry, listed below.

1) It's possible I'll need to withdraw the money within a 12-month period - is this possible on the provision of the notice period, and if so, will the interest be calculated as a proportion of the annual total and will this only be paid on the 1-year anniversary of opening the initial deposit even if the full balance has been transferred earlier?  

Vida Savings' guidance says:

"If you choose to receive interest annually, it will be paid on the anniversary of your initial deposit, or the next Business Day. If you choose monthly interest, it will be paid on the day of the month you first paid into your account or the next Business Day."  

2) If I open an account with the maximum FSCS amount £85k, will the balance go over the protected FSCS threshold at any time? In this case, I imagine the next best option is to transfer £81k to keep the maximum balance within the protected limit and seek another account for the surplus? 

I'd be very grateful for your responses. Many thanks in advance for any thoughts or suggestions you may have.

The AER - Annual Equivalent Rate - is the same for both options. If you selected monthly interest and then left it in there to compound, you'd get the same 4.85% over a year as the annual.

One difference would be when the interest is taxable - each month for the monthly, or just at the anniversary. However, since you'd only get one monthly amount between now and the end of the tax year, this makes little difference (since you're contemplating 85k or so, you may well pay tax on it next tax year, if it's in there more than 4 months from now, unless your earned income is under £18,870).

If you leave less than the minimum balance (£50) in it, they'll close the account, and pay the interest then. Leave £50 in, and the annual interest would wait for the anniversary.