Monthly or Annual Interest ???

idv · 31 March 2005 at 10:52AM

Hi

I plan to open an instant access savings account, however is it better to have interest paid monthly rather than annually on the savings in this account to get the best returns especially if you intend to remove some of the money in the savings account over the course of the year.

I have seen that ING Direct offer 5% interest and pay monthly interest, are there any other good savings accounts that meets my requirements. The A&L savings is set to 5.35% but pays interest annually.

I appreciate any advice/guidance that can be given.

TIA

blinko · 31 March 2005 at 11:13AM

annually is usually a higher rate thank monthly interest even with the compouning in this case i believe the alliance leicester is better the bradford and bingley is also a good monthly savings at 5.13%

grumbler · 31 March 2005 at 11:37AM

If you compare AERs (Annual Equivalent Rates) there is no difference for you whether interest is added monthly or annually. If AERs are the same you will get the same income. If account pays interest annually, the interest is still calculated on daily basis (with very rare exceptions). If you close such account before the year-end you still get the full interest earned. The only difference could be if you want to withdraw and spend income during a year, but in this case you cannot predict total yearly interest by using AER because AER assumes adding interests to savings (compounding).
This problem was also discussed in this THREAD.

A&L is better than ING (I take only interest rate into account) unless you have more than £25K.

ED · 31 March 2005 at 1:44PM

idv - If you decide to join Alliance + Leicester in order to open an Online Saver account, you can earn monthly interest via A+L's current account.

5.85% gross interest can be earned by monthly deposits of any amount between £10 - £1,000) in Derbyshire Bdg Society's Regular Saver account. Interest is paid annually, but it can be enjoyable for customers to calculate, each month, the amount of interest likely to have been gained at that point in time on their swelling balance. One penalty-free withdrawal is allowed each year, so effectively instant access.

Hope this helps.

Milarky · 31 March 2005 at 1:45PM

The difference between a possible rate compounded and the same rate paid once a year is usually practically nil.

Eg 5% twelve times a year at [5/12]% = (1.004166)^12 = 5.116%

5% every day [365 times a year] at [5/365] = (1.000137)^365 = 5.126%

There is a limit to infinitely compounding the same 'simple' of interest rate over shorter and shorter intervals which is: '(e^I) - 1' - where 'e' is the base of the natural logarthim - 2.71828.. and 'I' is the interest rate expressed as a decimal numder - thus 5% becomes '0.05'

Thus (2.718281828^0.05) - 1 = 0.051271096 [5.127%]

simple321 · 13 April 2007 at 7:49PM

So if I had an ISA which paid annually could I pay into a savings account which paid monthly and then put the money in the ISA just before the annual interest was about to be paid and so get two lots of interest for the year?

jem16 · 13 April 2007 at 9:19PM

No you could not. The ISA(just like any savings account) pays interest based on how long the money is there for. If you only had the £3k in for one day, one day's interest is all you would receive.

simple321 · 13 April 2007 at 9:51PM

Cheers, thanks for clarifying that for me

MrChips · 13 April 2007 at 11:01PM

If you are a tax payer, you will earn a little more interest if it is paid annually.

david_sills · 21 July 2008 at 5:59PM

I have several isa's but at some stage in the near future I would like to transfer the savings into something which will provide a monthly income in retirment...........is there such a thing as a monthly income cash isa?
David Sills

londoner01 · 18 January 2012 at 11:40AM

Similar problem, still none the wiser.

I'm considering opening an easy access saver to drip-feed another savings account.
This easy access saver has the option of having my interest paid in annually, or monthly.

Monthly interest is at 3,06% AER, and annual interest is at 3,10% AER. If you want more info, the account is a Santander esaver Issue 4 (newbie can't link apparently).

I intend to deposit a bulk sum and have a net monthly "exit" from the account of about 4% of the bulk sum. I only plan to keep the account for just over a year because the bonus interest then drops.

Any Maths whizz that can show me some equation goodness? I would probably understand them if someone showed them to me but am unable to come up with them myself.

By the way I am a taxpayer at 20% if that makes a difference.

Thanks in advance and looking forward to some sexy Maths!

Monthly or Annual Interest ???

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