BM 6 month bond

bestcheck

[FONT=Helvetica, Arial, sans-serif]Yesterday I received an application form from Birmingham Midshires for their 6 Month Fixed Bond. I know I should understand this now, but have to ask again about the difference between gross interest and AER.

I have rather pointlessly chosen the monthly interest bond rather than maturity bond, through an obsession about being able to make savings/investment changes six months down the road. In fact, I won't touch the interest on this 6 month bond until it matures.

At BM website, monthly interest is quoted as 6.66% gross pa / 6.87% AER. Maturity interest is 6.76% gross pa / 6.87% AER. The application documents [/FONT][FONT=Helvetica, Arial, sans-serif]I've just received [/FONT][FONT=Helvetica, Arial, sans-serif] for the monthly interest Bond only quote 6.66% gross pa, not the AER.

Of course, this is a 6 month bond, but will the interest earned on maturity be half of 6.66% or half of 6.84%? (I'm gross tax at present).[/FONT]

LittleVoice

I haven't looked at the detail for this bond but, if you have been receiving monthly interest, the total interest you receive will be half of whatever the gross rate is declared to be. (That is you receive the full amount of interest in terms of the rate per annum but because it is for only half the period, you can look at it as being half.)

If you had £1,000 invested and have gross interest as 6.66% pa for monthly interest then by the end of the six months you will have received 3.33% of the capital, £33.30.

bristolleedsfan

bestcheck wrote: »

[FONT=Helvetica, Arial, sans-serif] Maturity interest is 6.76% gross pa / 6.87% AER. [/FONT]

Even if someone doesnt choose monthly interest, at the end of 6 months they can if they wish reinvest the capital + interest thus earning interest upon the 6 Monthly interest thus achieving a higher AER.

bestcheck

Many thanks for replies. On £33,000, looks like I'll lose about £16 by going for the monthly rather than maturity option.

Dan29

bestcheck wrote: »

Many thanks for replies. On £33,000, looks like I'll lose about £16 by going for the monthly rather than maturity option.

Yes I get the same figures; I guess on large sums it's slightly better to go for interest on maturity if you're a taxpayer.