Help with one year fixed account with monthly interest

BACKTOBACK

Please could someone help me. i would like to invest £120,000 for one year with the highest monthly interest. i don't understand the advertised rates and if they are advertised as compounded etc.

I am considering Oaknorth 12 month fixed with monthly interest which says 5.12%

This assumes the account pays interest at an equivalent annual rate of 5.12% divided evenly across 12 months.

So can i be guaranteed £512 paid every month for 12 months with this account?

Is this currently the best account for my needs?

Thank you for any help

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6687475/help-with-one-year-fixed-account-with-monthly-interest

OakNorth don't seem to have an account with those terms.

It's either 5.12% with interest paid after the end of the term.

Or 5.00% with interest paid monthly. Which equates to 5.12% if you keep the interest in the account so it earns interest on the interest.

Most accounts don't pay interest in the way you describe either, it's paid monthly but is calculated by the number of days on the month, so to start with would be ~£493 for a 30 day month and ~£509 for 31 days.

SacredStephan

Beware, this OakNorth account pays monthly interest away to your linked account, so does not compound.

lr1277

Or to put it another way, you could look at the gross rate which is 5% and the AER which is 5..12%.

The AER rate assumes no money is taken out of the account and any interest added stays in the account to earn even more interest.

The gross rate assumes the monthly interest is paid away to another account which could be a current account or another savings account. The type of account does not matter, what matters is the interest does not stay in the fixed rate savings but is paid away.

So in your case with £120k and this product:

5% of £120k is £6k, which split monthly would be £500. The interest might be paid away to your current account. At the end of the term you would receive back the £120k initial deposit, plus you would have had all the interest payments in the meantime, which in this case would add upto £6k.

However if you chose the other Oaknorth product with similar terms but the interest paid at the end of the term, you would not get monthly interest either paid into the account nor paid away, but at the end of the term you would receive back £6144 interest plus your £120k initial deposit.

So the monthly interest gets you £144 less overall, but you get £500 per month to do with as you wish.

So when looking at fixed rate products where you want monthly interest look at the gross rate then divide that by 12 to calculate what you would get monthly.

Hope that helps.

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/82175043#Comment_82175043

Not sure about 'beware' - if OP is looking for a fixed term account with monthly interest then the implication is that they want to access the interest during the term, rather than letting it compound, otherwise why would monthly interest matter?

ToastLady

https://forums.moneysavingexpert.com/discussion/comment/82175177#Comment_82175177

Perhaps to have some of the interest in current tax year for tax purposes at 20%, rather than all at 22% next tax year. Although it does seem to me, that the OP does want monthly interest as income.

BACKTOBACK

https://forums.moneysavingexpert.com/discussion/comment/82175034#Comment_82175034

I was looking at this account 5.12% with monthly interest. I do need the interest as income and am aware it would not compound.

I just wanted to know the amount i would get each month? Would it be £500 or £512?

FrugaiMacDugal

Well that one says, At Maturity, so you will need to check the T&Cs.

BACKTOBACK

https://forums.moneysavingexpert.com/discussion/comment/82175352#Comment_82175352

https://oaknorth.co.uk/personal-savings/fixed-term/

My understanding was the Capital £120 is paid at back maturity. They have two accounts one with interest paid at maturity and one with monthly interest. Although i have just noticed in the terms it says gross 5% aer 5.12% so i can only think it is 5% monthly and £500 ?

lr1277

https://forums.moneysavingexpert.com/discussion/comment/82175389#Comment_82175389

Yes you will get £500 per month.

wmb194

https://forums.moneysavingexpert.com/discussion/comment/82175349#Comment_82175349

Use the gross rate to calculate your return, not the AER.