Savings - which is best Annual or re-save Monthly Interest?

[sadie]

Am considering opening a Nationwide UK (Ireland) account.
It says interest is paid from the date of receipt of the money.

Annual Interest is 3.30%
Monthly Interest is 3.25%

So would it be better to get the interest paid monthly (but you can't get it paid into the same account) - and then re-Save it back into the same acccount by electronic transfer from another account.
So that I am amassing more money each month, and therefore earning more interest?

OR get the interest paid Annually.

 

[sadie]

Actually I've double-checked this and:

With the Easy Access Savings Account, you CAN get monthly interest paid directly back into the same account.
So now I guess I do the sums and see which adds up to the better interest...

 

[patrickjd]

Yes, I have been doing this for the last year or so.
I think it works out pretty much the same whichever option you choose. The lower monthly rate compounds to give an effective rate of 3.3%.

 

[MugsGame]

The lower monthly rate compounds to give an effective rate of 3.3%.

It costs the bank about the same, in this case.

However annual is still better for the account holder, due to tax. 25% of the interest paid each month will be deducted as DIRT, and so won't be available for compound interest to apply.

 

[patrickjd]

good point.