Compound Interest on my ISA

Aegis

PBA wrote: »

Depends on your definition of the word compound, something not even dictionaries seem to agree on. It seems it can also mean calculate, which seems to be the meaning egg are using it for, as they seem to be calculating the interest daily and paying it annually.

Compounding has a very specific meaning in finance, and they do not appear to be using it correctly. The implication of compounded daily interest is that if you leave your interest in the account, you will receive an apparent interest rate higher than the stated gross amount, while you would receive the gross amount if you took all the interest out of the account as soon as it arrived. Clearly this is not the case with Egg, as if you leave the interest in you get their quoted gross rate.

In short, dodgy wording. Very dodgy.

wymondham

wow, did'nt know this would be so contentious!

are they being a bit sneaky here then???

Egg Say:

How is my interest calculated?
Interest is calculated on a daily compound basis.

Aegis

wymondham wrote: »

wow, did'nt know this would be so contentious!

are they being a bit sneaky here then???

Egg Say:

How is my interest calculated?
Interest is calculated on a daily compound basis.

Yes, they are. That statement flat-out contradicts their published rates.

Aegis

I've sent their Savings email team a query asking them to clarify Egg's position here, and told them that it is mathematically impossible for an account with daily compounding to have the same gross and AER figures. Hopefully they'll clarify the wording at some point!

owitemisermusa

Aegis wrote: »

I've sent their Savings email team a query asking them to clarify Egg's position here, and told them that it is mathematically impossible for an account with daily compounding to have the same gross and AER figures. Hopefully they'll clarify the wording at some point!

Hi there Aegis,

Keen to know how you get on. If they're cheating, please, please, please report them.

Daily compound basis indeed!

wymondham

I've used them for the 2007/8 tax year, but if they are being sneaky then I shall hold fire putting any more in and find an alternative for this new tax year so please let me know the outcome... thanks very much for your interest in this!

Aegis

The first reply hasn't been too successful in actually getting them to clarify why they've used the word compounding. Their explanation of the rate is exactly the same as for any annual interest payment, so I'm delving a little deeper to see if I can work out why they;re advertising daily compounded interest and only paying simple interest.