Mini Cash ISA / Interest Rate question

Without a hint of irony, "-" astounded uk.finance on

07 Feb 2004 by announcing:

So you're thinking of IF then, yes? :-)

Not a chance. Monthly interest on 100 at 6.9% (since that's what I'm charged on my loan, that's what I get on my ISA) is just over 50p.

If you invest 100 and leave it there for 1 year then: If your AER is 4.35% then at the end of the year you'll have earned exactly

4.35 interest; If your AER is 4.27% then you'll have earned a maximum of 4.27 interest, possibly less if you withdraw the interest each month?

No. That would make your monthly rate 4.xx%, not your annual rate which would be nearer 67% - although it would be nice if you could get that.

I'd have thought so; that's the point of being quoted the AER after all.

D'oh! Of course, I feel really stoopid now. Thanks for highlighting the obvious, what a plonker, can't believe myself sometimes...please ignore me from now on.

Never mind the silly mistake of confusing monthly with annual rate.

Be sure. It is obvious to work out.

After a year, the (a) account will be worth 104.35% of the original balance. To work out the (b) account balance, what you do is divide

12.0427 by 12 (getting 1.0035583, which means the real interest rate is 0.35583% per month -- starting with 12.0427 is a shortcut which avoids the need for adding 1 were you to start by dividing 0.0427 by 12), and then raise this to the 12th power. You will get 104.35456%. As you can see, this is a little bit more than with (a).

Without a hint of irony, Ronald Raygun astounded uk.finance on 07 Feb 2004 by announcing:

Well it's not how IF works (which is, after all, the subject of this thread). An AER of 6.9% with the interest paid monthly returns around 0.5577% per month (compounded over 12 months gives a total of 6.9% - 1.00577^12 gets you

1.069). By your maths, it would actually be 0.575% giving an AER of 7.12%.

Without a hint of irony, Alex astounded uk.finance on

07 Feb 2004 by announcing:

Actually, thinking about it, it should be the 12th root of the AER to get the monthly rate, rather than simply dividing by 12, no? 12th root of 6.9% is

0.5576% which ties in with my empirical results above.

I neither know nor care how IF works, since it is *not* the subject.

Where do you get 6.9 from? The OP mentioned 4.35% AER or 4.27%pa monthly.

An account claiming to pay interest at 4.27%pa credited and compounded monthly *is* paying an effective annual rate slightly in excess of 4.35%.

Without a hint of irony, Ronald Raygun astounded uk.finance on 07 Feb 2004 by announcing:

Since the OP is intending to open a mini cash ISA with IF, it most certainly *is* the subject.

I could do exactly the same calculation with those figures, if you like, since I was getting those rates before I opened the loan with them.

No. It's paying 4.27% annually. That's why it's quoted as an annual rate.

You can surmise what you like. The OP made mention neither of IF nor of 6.9%.

I'm not interested in what you could or could not calculate. Why not just stick with the figures supplied by the OP?

But it's not quoted as an AER or EAR or whatever.

Wrong. An account which claims to pay at an annual rate of 4.27% and says that interest is credited monthly, *is saying* that it operates a monthly interest rate of a twelfth of 4.27%, which of course compounds to an effective annula rate just over 4.35%.

"Alex" wrote

"Alex" wrote

Alex - you need to look *very carefully* at the IF info!

Eg - checking out their website, it is apparent (but not from the homepage, which simply quotes 4.35% AER whether paid monthly or annually) that :-

"ANNUAL INTEREST AER/Gross p.a." is 4.35%. and "MONTHLY INTEREST GROSS p.a." is 4.27%.

Note that the "monthly" figure is **NOT** quoted as an AER or APR or whatever. It is simply 12 times what the monthly interest rate is. Which - with monthly compounding - will give 4.35% AER. As Ronald quite rightly points out.

Without a hint of irony, "Tim" astounded uk.finance on 10 Feb

2004 by announcing:

Sorry, you're both right.