Monthly or Annual Interest

A question about : Monthly or Annual Interest

I have been thinking about sticking a few bob in the Nationwide Summer Bond and was wondering whether I should request monthly or annual interest. The figures are as follows

Annual AER/Gross pa = 6.00%, Net pa = 4.80%
Monthly AER = 5.96%, Gross pa = 5.80%, Net pa = 4.64%

Which of these are the important numbers and is there any difference in how much they would return at the end of a year.

Thanks for any help
Ivan

Best answers:

• Do you need monthly interest? If not, then Annual interest pays you better interest as you can see.
• "Annual !AER/Gross pa = 6.00%, Net pa = 4.80%
  Monthly AER = 5.96%, Gross pa = 5.80%, Net pa = 4.64%
  Which of these are the important numbers and is there any difference in how much they would return at the end of a year."
  The important figures are the 'AER' [annual equivalent rate] ones. In theory they should be the same for whatever option, since they allow precisely for the effect of 'compound interest' where it is paid out during the year.
  Nationwide tend to be a bit 'sharp' where monthly interest is concerned - you might expect a 'montly AER' about 0.2% less than the 'annual AER' [ ;D a new financial tautology - student100, add that to the list!]. However there is only 0.04% difference - so the monthly interest option works out virtually the same.
  I like monthly interest also - but [for tax reasons] am currently opting for 'annual' - so that as much interest as I earn as possible is actually received next [tax year]
• 6.00% AER (gross). Take the 12th power of 1.06 therefore. 0.486755% per month gross. This is taxed at 20%, so the 're-invested' interest equals 0.389404%. This makes the 'net' AER (1.00389404)^12 !- 1, or 4.77%. Grossing this up, the AER stands at 5.9678%.
  However, there is a problem here:
  1) the stated gross rate is 6.00%
  2) the required net rate is exactly 4.80%, therefore
  3) if the 6.00% is paid (compound) over 12 months - as worked out above - and tax deducted at 20% the 'net' rate is no longer 80% of the 'gross' rate.
  So I assume that it is just not possible [legally] to quote the 'net' AER unless the interest is paid annually - in which case the point of having an AER is irrelevant. It only permits comparison of 'gross' rates, in other words.
  ???