# €100 interest back on €6000



## Olly64 (5 Apr 2007)

I have just received interest of €100 on €6000 for one year in the AIB internet regular saving account, it says annual return of 4.25% which should yeild €255, i had no withdrawals, should i contact the bank or is this correct, is there a better place for my €6000?


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## Howitzer (5 Apr 2007)

This is a common misconception with regular savings accounts. Assuming you've made 12 deposits into this account over the course of a year at monthly intervals then only the first monthly deposit attracts interest of 4.25%. The next one attracts interest of 11/12 ths of 4.25%, and so on. On average your payments receive interest of 4.25% / 2 = 2.125%.

Interest owed = 127.5

Also I suspect the interest rate at the start of the year WASN'T 4.25%, it was closer to 3% since the ECB has been raising rates over the course of the last year. This explains why you got 100 instead of ~127.


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## demoivre (5 Apr 2007)

If it was a regular savings account you wouldn't have had the 6k on deposit for the full year though - how much were you saving each month?


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## asdfg (5 Apr 2007)

> Interest owed = 127.5


 
Less Dirt @ 20%


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## Howitzer (5 Apr 2007)

asdfg said:


> Less Dirt @ 20%


 
Bingo.


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## ClubMan (5 Apr 2007)

As per _Howitzer's _post above use this calculator to see what actual interest you will earn on regular savings to an account offering a specific _CAR_.


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## oldtimer (5 Apr 2007)

I received mine also, €90 on a slightly lower amount, and when I saw it was very disappointed. Worked it out (quite difficult) and it appears to be correct. Howitzer is correct - must bear in mind the 1/12 calculation and interest was lower. You are calculating it as if the whole €6000 was on deposit for full 12 months @ 4.50% and you are also forgetting DIRT. Also remember these personal plan accounts pay the interest *twice* a year in April *and October*. To answer Demoivre, I presume it is a personal saving plan account with AIB i.e. up to €1000 per month for 5 years with bonus interest if withdrawals within terms and conditions. It sounds like a regular saver account but is not. Best to leave it alone - it is now earning 4.50% and if you keep within the withdrawal guidelines you will earn an added interest bonus. You will notice quite an increase with next dividend in October.


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## ClubMan (5 Apr 2007)

oldtimer said:


> Best to leave it alone - it is now earning 4.50% and if you keep within the withdrawal guidelines you will earn an added interest bonus.


You can get 5% gross _CAR _on demand deposits up to €10K with _Rabo_ with no strings attached.


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## Olly64 (5 Apr 2007)

thanks lads and lasses, that explains it, i suppose id better leave it there, i was saving different amounts each month but it never dawned on me that its only calulated on what was in it from the start and so on and so on.


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## oldtimer (5 Apr 2007)

Clubman is correct but bear in mind the positive side of this account. In the first year, if withdrawals kept to two, the interest is 4.50% plus 10% of that = 4.95%. In second year the added bonus is 20% of interest rate and so on to year 5 when interest bonus is 50% of rate at that time. Now that poster has started and assuming intends to continue I think it better to stay with this account.


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## Nemesis (5 Apr 2007)

*Re: €100 interest back on €6000*

Plus Rabo are only guaranteeing the 5% until the end of the year and I'd be surprised if they keep it at that going forward into next year (unless perhaps the ECB rate goes up substantially in the meantime).


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## sherib (5 Apr 2007)

> Originally Posted by *Howitzer*
> _This is a common misconception with regular savings accounts.
> On average your payments receive interest of 4.25% / 2 = 2.125% _


Thanks - that's a very clear explanation of how these savings rates work. So these 'great' savings rates of ~ 7% are in reality half that in real terms. Does that mean that in the second year 7% is paid on the full first years savings or whatever the rate will be then (probably much less)? 


> Originally Posted by *Oldtimer*
> _I presume it is a personal saving plan account with AIB i.e. up to €1000 per month for 5 years with bonus interest if withdrawals within terms and conditions_.


Does that mean that _AIB's _Online Personal Savings Plan with bonus is the best on offer? I find it quite difficult to figure out how these rates are calculated - just not my forte. Unless I'm doing something wrong, it seems you have to know the final sum in advance to work out the interest using that calculator posted by ClubMan.


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## hattrick_12a (5 Apr 2007)

oldtimer said:


> Clubman is correct but bear in mind the positive side of this account. In the first year, if withdrawals kept to two, the interest is 4.50% plus 10% of that = 4.95%. In second year the added bonus is 20% of interest rate and so on to year 5 when interest bonus is 50% of rate at that time. Now that poster has started and assuming intends to continue I think it better to stay with this account.



I think its more a case of 



> Your bonus will be added to your account with your interest in April:
> *Year 1,* a bonus of 10% of interest earned is paid
> *Year 2,* a bonus of 20% of interest earned is paid
> *Year 3,* a bonus of 30% of interest earned is paid
> ...



Which I think is different to what you were saying. And I don't think works out that great or at least I don't think it would be same as what the way you put it 





> 4.50% plus 10% of that = 4.95%


.

Is it fair to say that there are alot of products, savings wise, out there that overall are similar. What I mean is the regular savings ones and the one mentioned here with AIB. To work out the difference between the products is difficult as they are a bit complex, well at least to work out anyhow. Or maybe I am wrong. But Overall I think some products would probably work out similar in the overall gain. 

To me it just seems like banks selling a complex product is just good marketing, for them.



> Unless I'm doing something wrong, it seems you have to know the final sum in advance to work out the interest using that calculator posted by ClubMan.



Are you using the right one?
If you are using the Future Value calculator, if you are saving 100euro for 12 months at 5% gives $1232.25, try it?


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## demoivre (5 Apr 2007)

sherib said:


> Thanks - that's a very clear explanation of how these savings rates work. So these 'great' savings rates of ~ 7% are in reality half that in real terms.



To calculate the return in *real *terms  you would  need to adjust for inflation which ran at 4% last year. See this article for an explanation.


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## ClubMan (5 Apr 2007)

demoivre said:


> To calculate the return in *real *terms  you would  need to adjust for inflation which ran at 4% last year. See this article for an explanation.


If you no longer have a mortgage then the HICP rather [broken link removed] might be more relevant inflation as mentioned recently in another thread. More on the two stats here:

Department of Finance - Monthly Bulletins


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## sherib (5 Apr 2007)

> Originally Posted by *Demoivre*
> To calculate the return in *real *terms you would need to adjust for inflation which ran at 4% last year.


Thanks DM, I hadn't forgotton about inflation - just didn't want to  myself and trying to be optimistic. The way I see it if one can break even, stay the same and not go backwards, that's maybe as good as it gets right now. Not great but better than loosing on a horse! Looking at CM's post on HIPC (mortgage free luckily), it seems I'm ahead of the game.


> Originally Posted by *Hattrick_12a*
> _Are you using the right one?_
> _If you are using the Future Value calculator, if you are saving 100euro for 12 months at 5% gives $1232.25, try it_?


That's terrific - I wasn't using the right calculor - thanks a mill. However, when I enter the same figures (100, 12 months, 5%) and final sum from Future Value into the Compound Annual Rate box, it gives Compound Annual Rate (%) as 1132.25. That doesn't make sense, so what am I doing wrong again or what is the explanation? At least I did recognise that AIB's 'bonus' was on interest earned and not on the %. That would be too good to be true. I'm really very grateful to all the helpful posters on AAM. Happy Easter everyone


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