Online Personal Savings Plan AIB

Hi

Just looking at this offer and am wondering am I reading it right when it says that:

Year 1 bonus of 10% interest earned is paid
Year 2 bonus of 10% interest earned is paid.... is this compounding ?
and similarily in years 3,4,5

and the whole cycle starts again in year 6

Any comments / observations


Thanks


Bedlam

Hi Bedlam

The way it works is follows,

U earn a bonus 10% interest on interest earned if you dont make more than one withdrawal a year

For example say you receive €19.64 in interest in April, you then get 10% of that so its €1.96. Not sure how it works in year two if its compounding or not

Hope this helps a bit

Nearly sure its :

10% Yr1
20% Yr2
30% Yr3
40% Yr4
50% Yr5
10% Year 6 and the cycle starts again

The above is Bonus Interest on the annual interest paid which is in April each year. number of withdrawls restricted.

Overall i think it is a very good account for regular savers.

I find it handy because you can save the minimum of €20 a month by direct debit but can throw in other amounts whenver you want, up to a limit of a grand in a month.

If you put in a grand a month and left it there for five years without making more than one withdrawal a month, you'd be doing pretty well on just the interest but the bonus of getting extra interest is a great incentive.

Quote ''say you receive €19.64 in interest in April, you then get 10% of that so its €1.96.'' Is this the way it works? I don't think so. My reading is, if the average interest earned is 4.50% in year one, then the bonus added in year one is 10% of 4.50% = 4.95% of the amount in the account.

110% of the AER rate applied to the principal and 110% of the actual interest amount to the same thing. If 4.50% is €19.64, then 4.95% is €19.64+€1.96. In practice AIB credit the bonus separately, so Cazza is completely correct.

Thanks for the replies, which cover the first year position. Any views on the position in year 2,3,4 and point about compound interest

Bedlam

Position in Year 2 is they calculate interest using the headline rate, and then credit 20% of that interest as a bonus (provided you qualify). Interest credited becomes part of the principal, so in future years you get interest on the interest (compounding.). But that doesn't alter the effective the annual rate.

Mugsgame

Thanks for clarifying this for me

Bedlam

Sorry if I sound stupid but this in one account I cannot get my head around. I started one of these accounts last August - €1,000 per month. As per terms and conditions my interest was added in April, €90.75, so my amount now going into year 2 is €8,090.75. I hope to continue lodging €1,000 per month without a withdrawal, so my amount next year will be €20,090.75. For this exercise lets assume interest rates will remain unchanged. Am I right in saying the interest on the €20,090.75 will be calculated @ 5.40% (4.50%+20% of 4.50%)? Is Mugsgame saying €20090.75 calculated @ 4.50% and then 20% of that interest is the bonus? Would both work out the same? Again apologies if I sound confused but i intend going through the 5 years with the maximum amount so would like to know how interest calculated.

20090.75 calculated @ 4.50% and then 20% of that interest is the bonus? Would both work out the same?

Click to expand...

Not quite. Forgot about the bonus for a minute.

On most savings accounts, interest is credited once a year, but calculated daily on your balance over the year. You may have €20,090 in your account next April when interest is credited, but your average balance over the year will be closer to €8,000 + (€20,000-€8000)/2, i.e. €14,000. So if the interest rate was constant, 4.50% of aprox. €14,000 will be applied next April. In reality the interest rate is variable. As interest is calculated daily, you will get 1/365 * 4.5% of your balance on each day, until the rate increases or decreases.

Back to the bonus. In year 2 the normal interest is calculated over the year, and then 20% is added as a bonus. But if we want to compare this with another account that doesn't offer a bonus, we need to calculate the Annnual Equivalent Rate including bonus. To do that, just add 20% to the quoted AER of 4.50%, i.e. 5.4%. In reality, the interest rate is variable and will probably change, so your total interest next April won't be 5.4% of €14,000.

I have ones of these accounts open already, can I open another one?

I have a cash save account that I keep up to 1000 euro in at a time, just as a buffer from my current account, but it does not earn much interest.

I want to change it to this account , but i will also be taking money out from time to time

Ring and ask AIB is the quickest way.