ISA interest

£3,174 as long as the rate doesn't change.

AER means "annual equivalent rate". It shows the true rate of interest you will have received by the end of the year taking into account the regularity of which interest is added to the account (as the payment frequency has a compounding affect on the amount of interest you receive)

Assuming that 5.8% is the APR, you'll end up with interest of 5.8% of 3000 (8.7) and will thus have 3178.70

In order to get the higher figure, you would need to get 1/12 of 5.8% monthly, and have the interest gross up for 12 months. This would give an APR of 5.967%

Banks and Building Societies often quote 2 rates depending on whether the interest is paid monthly or annually - but they usually work out exactly the same if you leave the capital and interest invested for the whole year. Of course, if you withdraw the interest each month, it doesn't gross up and you end up with the lower figure.

In the specific case of an NS&I Direct ISA, interest is paid annually with no monthly option - so the 5.8% quoted *has* to be the APR.

As others have pointed out, the rate could change during the year - since it is related to the Bank of England Base Rate. In that case, interest will be calculated on a daily basis (X days ay one percentage, Y days at another, etc.) - but still added in one lump at the end of the year with no grossing up.

3000*5.8/100 = 174.00 not 3178.70

Oops - I quoted the wrong figure! What I *meant* to write was:

"Assuming that 5.8% is the APR, you'll end up with interest of 5.8% of 3000 (4) and will thus have 3174.

In order to get the higher figure (3178.70), you would need to get 1/12 of

5.8% monthly, and have the interest gross up for 12 months. This would give an APR of 5.967%"

However, even this isn't *quite* right. An APR of 5.967% would actually give you interest of 179.01 rather than 178.70 - so I don'y know where Tracy's

178.70 comes from.

A nominal 5.8% compounding monthly actually corresponds to an APR of

5.9567, not 5.967. That explains it.

Bifocals triumph again!

Easily done.

Yes, I agree with that

((1+5.8/1200)^12-1)*100 = 5.9567. I think you made a small typo - missed the 5 after the 9?

I agree with Tracy's figure:

3000*(1+5.8/(12*100))^12 gives 3178.70

In message , Ronald Raygun writes

But not as good as mine. It should be AER, not APR.

Drat! Well spotted, Eagle Eyes.

You're right - I can't read my own calculator!

Yes, so do I now! My 5.967% should have been 5.9567% - then it all stacks up.

They dont call me '20 19' for nothing.