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when the bank states interest paid either monthly or yearly how does this work and which is best

by denbow6 03 October 2010 |

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879

MikeGG1 posted
Which is best would depend on the AER (Annual Equivalent Rate).
It is usual for both AERs to be the same or the monthly one might be slightly less. The actual rate for monthly will be less to compensate for the monthly compounding.
Mike
Posted on 03 October 2010 | Love 2 loves Report
174

JoeEasedale posted
If the AER is the same then Monthly interest would better as you would then get interest on interest.
That is why the Annual AER is usually a little higher to negate this effect of compound interest.
It tends to come down to - Do you need the monthly income to live on.
Posted on 04 October 2010 | Love 2 loves Report
879

MikeGG1 posted
Joe
The AER allows for the compounding. I think you meant the actual rate.
The comparison should be on the AER.
Mike
Posted on 04 October 2010 | Love 0 loves Report
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Honestanswers posted
Of course a simpler answer would be that monthly interest paid is better for you if you need an income monthly, annual interest if you need no income. Most annual rates will beat monthly rates as the provider keeps your money for longer.
Remember not all financial planning is about earning .001% extra on your savings or paying 0.002% less on your mortgage, it is about making sure the plan fits your needs not the banks!
Posted on 05 October 2010 | Love 2 loves Report
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denbow6 posted
Thank you Honestanswers you are nearer to my point , what I'm trying to establish is if I am on yearly interest and I withdraw a lump sum say whithin six months will I get interest on that lump sum!
Posted on 05 October 2010 | Love 0 loves Report
879

MikeGG1 posted
Actually that is the best circumstance. You would get the annual rate paid pro-rata for the number of days invested.
Mike
Posted on 12 October 2010 | Love 0 loves Report

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