Monthly or Yearly Interest?

EBG

Can anyone tell me whether I should opt to have monthly or yearly interest on my savings accounts. I usually go for yearly interest but am wondering if it would be better to opt for it monthly!!!

swannie_girl

I would stick with the yearly interest rate being added to the account, sometimes the monthly interest rate is a little lower than yearly but if you would like to top up your income each month then go ahead with the monthly one as the interest is usually paid into your chosen current account.

Mikeyorks

You're better with annual interest. In particular if you leave it in the account - and you pay tax on it at 20%. If you get it monthly (less the 20%) - it reduces the beneficial effect of the fact the interest is compounded.

Only go for monthly if you want the interest as regular income? And that can be problematic as your capital then erodes sharply against inflation .... without the interest affording it some protection.

[Deleted User]

Thanks for that post! Very informative and something I'd not considered

kingmonkey

Although the differences are extremely small and doesn't make that much of a difference.

Milarky

jackdoor wrote: »

As long as you don't intend withdrawing interest within each 12-month period then just go for the highest AER (monthly or annual).

Yes, as long as the AER rate is the same as the 'gross' rate that is saying that you will receive the same from compounding as from being paid only at the end of the year.

However most ISAs probably only have an annual interest rate option anyway..

EBG

EBG wrote: »

Can anyone tell me whether I should opt to have monthly or yearly interest on my savings accounts. I usually go for yearly interest but am wondering if it would be better to opt for it monthly!!!

Thanks for all your help everyone:beer:

Paul_Herring

Milarky wrote: »

Yes, as long as the AER rate is the same as the 'gross' rate that is saying that you will receive the same from compounding as from being paid only at the end of the year.

However most ISAs probably only have an annual interest rate option anyway..

Only if it is an ISA or you pay no tax on your interest. (The OP didn't specify ISA's)

If you do pay tax, then there is a minute difference due to the fact that you're compounding interest on taxed interest for the monthly option.

Minute as in 27p/£1000[1] capital on 6.5%: http://spreadsheets.google.com/pub?key=pNBpCyyhhED0L42bCUZCgWA


[1] for 20% tax payers. 39p for 40%ers.

Lokolo

Paul_Herring wrote: »

Only if it is an ISA or you pay no tax on your interest. (The OP didn't specify ISA's)

If you do pay tax, then there is a minute difference due to the fact that you're compounding interest on taxed interest for the monthly option.

Minute as in 27p/£1000[1] capital on 6.5%: http://spreadsheets.google.com/pub?key=pNBpCyyhhED0L42bCUZCgWA


[1] for 20% tax payers. 39p for 40%ers.

Those to be fair this is the ISA section :rolleyes: