Confused by all these short-term bonus'

Canny_mal

Hi

I'm trying to get my head around the various short-term 3 month bonus' various providers are offering at the minute. Although the bonus' are only for 3 months they all seem to be quoting the AER rate which makes it hard for me to understand what the actual rate I'd be receiving during the bonus period. 

Is there a way I can calculate it for myself an none of the providers offering these bonus' seem keen to spell out what the real rate is.

During the previous tax year I took out a chip ISA which was offering a boosted rate of 5.00% AER for 6 months, but again I don't know what that means the actual daily rate is during the bonus period.

I get the feeling these bonus' look great on paper but the reality is somewhat disappointing.

sammy_zammy

Calculate what the annual interest would be at the boosted rate, divide by 4.

slinger2

Surely it's quite easy.

If you save in something that's paying "5.00% AER for 6 months", you'll obviously get (roughly) half the 5% ie 2.5% in actual interest, so £1000 turns to £1025 after the 6 months.

If you save in something that's paying (say) 6% AER for 3 months, you'll get (roughly) a quarter of the 6% ie 1.5% in actual interest, so £1000 turns to £1015 after the 3 months.

Hattie627

Canny_mal said:

Hi

I'm trying to get my head around the various short-term 3 month bonus' various providers are offering at the minute. Although the bonus' are only for 3 months they all seem to be quoting the AER rate which makes it hard for me to understand what the actual rate I'd be receiving during the bonus period. 

Is there a way I can calculate it for myself an none of the providers offering these bonus' seem keen to spell out what the real rate is.

During the previous tax year I took out a chip ISA which was offering a boosted rate of 5.00% AER for 6 months, but again I don't know what that means the actual daily rate is during the bonus period.

I get the feeling these bonus' look great on paper but the reality is somewhat disappointing.

It's always possible to transfer money in a cash ISA to another cash ISA provider (although not all cash ISA's accept transferred ISA funds, sometimes only "new" money, and you may also have to pay a penalty in lost interest to the original provider). Transferring cash ISA funds is a bit of a faff (you have to open the new ISA account and ask the new provider to arrange the transfer). You inevitably lose at least a couple of days' interest simply in the transfer process, plus you lose the feeling that you are in control of the transfer which, psychologically for control freaks, can be jarring. For these reasons, I would say transferring cash ISAs should not be undertaken lightly. While the short-term boosted rates look attractive for the first 3 or maybe 6, months, you then have the issue of moving your funds when the bonus period ends. Other views may vary, but I think it's best to look for a provider which consistently gives competitive "straight" returns, without luring in people with short term bonuses.