Determining interest yield from an account

funkey_monkey

Hi,

i'm trying to move some money about my accounts and whilst trying to fit things in the most sensible way, I realised that I'm not 100% sure how to calculate the amount of interest an account will yield for me on my initial deposit.

Say I put £3,000 into an account @ 6.5%AER, 6.0% Gross and 5.35% net (random values for this dicussion) if everything stays equal, how do I determine that amount of interest Ill obtain at the end of a year based on myself being the normal rate tax payer?

Thanks.

YorkshireBoy

For an account paying interest annually, the AER and gross p.a. figures will usually be the same. Only if the account pays interest monthly, or quarterly for example, (or there's an introductory bonus for x months) will the AER and gross p.a. figures be different (due to 'compounding').

So, in your example...

£3,000 x 6.5% = £3,000 x 0.065 = £195

Now multiply this figure by 0.8 (for 20% savings tax), and you will receive...

£195 x 0.8 = £156

funkey_monkey

So for a 6 mnth fixed term is it gross for AER I use? Presumably gross???

For 6 mnth fixed term with compounded interest monthly @ 6.56%:

Month 1
£3000 * 6.56/100 = 196.8 *0.8 = 157.44 / 12 = £13.12
Month 2
£3013.12 * 6.56/100 = 197.66 *0.8 = 158.13 / 12 = £13.18
Month 3
£3025.31 * 6.56/100 = 198.46 *0.8 = 158.77 / 12 = £13.23
Month 4
£3038.54 * 6.56/100 = 199.33 *0.8 = 159.46 / 12 = £13.29
Month 5
£3051.83 * 6.56/100 = 200.2 *0.8 = 160.16 / 12 = £13.35
Month 6
£3065.18 * 6.56/100 = 201.7 *0.8 = 160.86 / 12 = £13.41

Total earned = £3078.59


Or with interest earned on maturity @ 6.65%

£3000 * 6.65/100 = 199.5 * 0.8 = 159.6 * 6/12 = 79.80

Total = £3079.80


Is this correct???