Is it better to
save in an ingdirect account having interest added monthly and with an AER of 4.75%
or save with nationwide invest direct interest calculated daily but added annually at 5.05AER ?
I have never really understood AER etc and i think a lot of organisations use a bit of smoke and mirrors to confuse/mislead people
thanks
jo
5.05% AER added annually is better than 4.75% AER added monthly.
In fact, even 4.75% AER added annually would be better than 4.75% AER added monthly, because of the effect of taking tax off whenever the interest is added:
4.75% AER added monthly is basically 0.38747% per month gross (before 20% income tax is deducted), which is 0.30997% per month net of tax, which is really worth 3.7838% per year. On the other hand, 4.75% AER added yearly is really worth 3.8000% per year.The organisations just do what the government rules tell them to. Unfortunately, AER is not a good indicator of how well a savings account performs for you, unless you are a non tax payer.
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