Online cash ISA with monthly interest?

Viala

Hello - sorry if this is a very obvious question, but I've never had an ISA before. I read the advice on this site to save for Christmas using an ISA and it seems an excellent idea. I would much prefer to do this online as I use online banking anyway. But careful study of the top ISAs recommended showed that they pay interest annually, usually after Christmas. That makes them not much good for saving for this Christmas from next month - or am I missing something? I realise I'll get the interest added eventually, but not until after I need it.

Is there any way of quickly finding out which ISAs add interest monthly?

Baldur

Icesave certainly offers a monthly payment option at 5.94% currently (6.10 AER annually).

Paul_Herring

But careful study of the top ISAs recommended showed that they pay interest annually, usually after Christmas. That makes them not much good for saving for this Christmas from next month - or am I missing something?

If you're intending to withdraw the whole lot (and not carrying any over to next year,) closing the ISA at the start of December (or whenever) should give you your pro-rata interest when you close it.

Jumping_Bean

Yep, just close the ISA at Christmas and all the interest you're due will be paid to you when you close it.

Mr._H_2

Baldur wrote: »

Icesave certainly offers a monthly payment option at 5.94% AER currently (6.10 AER annually).

The AER is the same (6.1%) whether you choose monthly or annual. It's the gross that is different (the monthly gross is lower as since the interest is added monthly, you then get interest on the interest. If you put e.g. £1000 in, after 1 year you will have £1061, regardless of which interest option you choose.)

owitemisermusa

Mr._H wrote: »

The AER is the same (6.1%) whether you choose monthly or annual. It's the gross that is different (the monthly gross is lower as since the interest is added monthly, you then get interest on the interest. If you put e.g. £1000 in, after 1 year you will have £1061, regardless of which interest option you choose.)

So it makes no difference if they pay monthly or annual interest? I thought monthly would be better as you earn interest on interest. I ahve asked this several times but must say, still confused.

joeparnell

Yes you are correct, you will be earning compound interest, however it will be of the lower, monthly rate. This lower rate cancels with the fact you're earning compound interest and thus you will earn exactly the same amount choosing either option.

Baldur

owitemisermusa wrote: »

So it makes no difference if they pay monthly or annual interest? I thought monthly would be better as you earn interest on interest. I ahve asked this several times but must say, still confused.

The AER is the same IF you leave the funds in the account for a full year (as pointed out, my fingers typed AER in a place where my brain didn't mean to place it in an earlier post).

See HERE for an explanation.