Moneybox ISA annual interest

clairec666

As a quick example, if you have a gross interest rate of 5% which compounds monthly the AER is about 5.11%
With savings of £10000, you'd get £12 more than compared to 5% being paid yearly.
So not a massive difference, but not insignificant.
And if you're withdrawing the interest each month, you're losing the benefit of compounding anyway.

Ultrasonic

slinger2 said:

So, unless you're living off the interest, the differences between the two can generally be ignored. It's really a personal preference. I normally go for the annual option since I find that simpler - just 1 number per year and also slightly delays the tax I'll have to pay on it. Others like to see the interest accumulating through the year.

The tax element is of course not relevant for the ISA being discussed though.

slinger2

clairec666 said:

As a quick example, if you have a gross interest rate of 5% which compounds monthly the AER is about 5.11%
With savings of £10000, you'd get £12 more than compared to 5% being paid yearly.
So not a massive difference, but not insignificant.
And if you're withdrawing the interest each month, you're losing the benefit of compounding anyway.

Yes, clearly 5.0% gross paid monthly gives you more interest than 5.0% paid annually. However the point here is that 4.89% gross paid monthly (5.0%AER) is exactly the same as 5.0% paid annually. As long as you leave the monthly interest in the account, you'll end the year with £10,500. If you take the interest out you'll end up with £10,000, plus £489 that you've taken out.

masonic

...which is why the FCA mandates that AER is the rate that is displayed most prominently to aid like for like comparison.

clairec666

Main point is, if you want to compare accounts accurately, use the AER.

danlightbulb

Appreciate the replies. I suppose because I was assuming these rates were gross initially, obviously the lack of compounding then slightly matters.

Obviously 5% gross with compounding is better than 5% AER.

Clearly in this case the rate quotes is AER and so the equivalent gross rate which they don't tell you is lower.

eskbanker

danlightbulb said:

Appreciate the replies. I suppose because I was assuming these rates were gross initially, obviously the lack of compounding then slightly matters.

Obviously 5% gross with compounding is better than 5% AER.

Clearly in this case the rate quotes is AER and so the equivalent gross rate which they don't tell you is lower.

In which case?  In other words, as asked before, which account (paying interest more frequently than annually) has a lower gross than AER without stating both rates?

slinger2

Indeed, the reason the Moneybox Open Access Cash ISA doesn't quote a monthly gross rate is because there's no option to get monthly interest. If you want to compare two accounts, one paying annually and the other monthly, then you need to be comparing their AERs.

danlightbulb

eskbanker said:

danlightbulb said:

Appreciate the replies. I suppose because I was assuming these rates were gross initially, obviously the lack of compounding then slightly matters.

Obviously 5% gross with compounding is better than 5% AER.

Clearly in this case the rate quotes is AER and so the equivalent gross rate which they don't tell you is lower.

In which case?  In other words, as asked before, which account (paying interest more frequently than annually) has a lower gross than AER without stating both rates?

My trading 212 Isa pays interest monthly (used to be daily) yet the only rate I can see advertised is the 4.35% AER.

Moneybox website also only quotes the AER even though they offer a cash Isa paying monthly interest.
https://www.moneyboxapp.com/cash-isa?

masonic

danlightbulb said:

eskbanker said:

danlightbulb said:

Appreciate the replies. I suppose because I was assuming these rates were gross initially, obviously the lack of compounding then slightly matters.

Obviously 5% gross with compounding is better than 5% AER.

Clearly in this case the rate quotes is AER and so the equivalent gross rate which they don't tell you is lower.

In which case?  In other words, as asked before, which account (paying interest more frequently than annually) has a lower gross than AER without stating both rates?

My trading 212 Isa pays interest monthly (used to be daily) yet the only rate I can see advertised is the 4.35% AER.

Moneybox website also only quotes the AER even though they offer a cash Isa paying monthly interest.
https://www.moneyboxapp.com/cash-isa?

The FCA points out in BCOBS 2 Annex 1 that it expects firms to take account of the BBA/BSA Code of Conduct for Advertising of Interest Bearing Accounts, which includes:

"8. Advertisements which quote a rate of interest must quote the Annual Equivalent Rate and the
contractual rate. No rate or return shall be given greater prominence than the AER. For
illustrative purposes, advertisements may also include an AER including conditional bonuses.
However, this rate must be given less prominence than the contractual rate and the true AER,
and must be described as "AER including conditional bonuses". Where contractual rates are
quoted on the basis of other than a 12 month period, this must be clearly stated. Where an
interest rate is calculated on a basis other than actual/365, the basis should be stated and the
AER should nonetheless be calculated on an actual/365 basis."

https://web.archive.org/web/20110314085754/http://www.bba.org.uk/download/3496

So it would seem the financial promotion on their website is non-compliant, as it does not state the gross rate for monthly interest (also for showing the rate that includes the conditional bonus more prominently). However, I don't know what information they provide in their app. However, it looks like both accounts listed on moneyfactscompare.co.uk state annual interest, so I don't know if there has been a recent change to monthly.