About bank account interest rates?
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I want to open a savings account with 4.89% gross, 5.00% AER variable paid monthly.
Does this mean that this is the total interest I will earn for the year and it will be divided by 12 to be paid each month, or will I get this percent paid each month?
About bank account interest rates?I use the following example in order to simplify the explanation. Say if u pay in a 拢100 now (provided that interest rate remains at 5% AER and u do not move the money), then a year later the balance of your a/c should be 拢105.
After the first month, u should have
拢100 + ( 拢100 x 4.89% / 12 ) = 拢100.4075
After the second month, u should have
拢100.4075 + ( 拢100.4075 x 4.89% / 12) = 拢100.8167
Basically after each month, u'll have a little more (compounded) so on and so forth.
The above calculation is if u r a non tax payer. In order to get tax free savings, u need to fill in an R85 application form in advance. This form can be downloaded at www.hmrc.gov.uk/forms/r85.pdf
Additional Note:
AER stands for annual equivalent rate and illustrates the interest rate if it was paid and compounded once each year.
Gross per annum is the annualised rate before deduction of tax at standard rate.
About bank account interest rates?That's the total for the year - but don't forget that interest you earn in month 1 will be added to your balance - meaning more interest in month 2, but you will have to pay income tax on this.
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