Icesave 2 Year Fixed Rate - Is compounding included in AER?

Joey122

Icesave offer a 2 year AER paying 6.6% and they pay they interest on maturity.

Since they pay the interest at maturity there is no compounded interest - Is this reflected in the AER?

Does it make a material difference to the interest rates?

masonic

Joey122 wrote: »

Since they pay the interest at maturity there is no compounded interest - Is this reflected in the AER?

It should not be, as the AER represents the interest you would earn after a year if interest was paid yearly.

Does it make a material difference to the interest rates?

Yes, it would only take a rate of 6.4% AER to earn an equivalent amount of interest in an account with annual interest payments.

Edit: It looks to me like Icesave actually do pay interest either annually or monthly according to this page, so I'm not sure where you got the information that interest is not paid until maturity.

Mikeyorks

Joey122 wrote: »

Since they pay the interest at maturity there is no compounded interest - Is this reflected in the AER?

When they pay the interest .... and when they calculate it, are often different.

As the AER and gross Interest are the same (6.6%) ... it's compounded