From: "Tim" 
Newsgroups: uk.finance
Subject: Re: Compound intereset calculators - different results.
Date: Tue, 19 Apr 2005 08:56:30 +0000 (UTC)

> "Tim" wrote
> > I'm now thinking about the type of account where you need to make a
> > regular monthly deposit of (say) upto £250pm, for a period of exactly
> > 12 months, and you get an enormous (nominal) rate of, say, 7%pa.
> > [Suppose interest is paid annually, applied (& then
> > compounded), in exactly 12 month's time at 7.00%.]
> >
> > A single deposit at the start of the year would earn 7%
> > interest, so AER would be 7.00% (for a single deposit).
> > But with 12 separate deposits at monthly intervals, the
> > AER would be (let's hope I'm right here!) ... 7.07%.
> >
> > How does this example tie-in with your comments above?
> > Should the bank quote AER=7.00% (the effective rate
> > a 'single depositer' would obtain) or AER=7.07%
> > (the effective rate a 'regular saver' would obtain) ??
> >
> > From Halifax's offering at 6% quoting AER=6.05%, I'd guess the latter.
> > But this *does* "... vary with the transaction pattern ..."
> > (as shown above) - contrary to your comments....
> >
"john boyle" wrote
> The AER rules differentiate between those accounts in
> which the regular contribution is contractual (which is the
> case of the account to which you refer) and those in which the
> transactions are discretionary. In the case of the former then the
> calculation is as you describe, in the latter then the transactoins
> make no difference. E.g. the Halifax basic savinmgs accounts
> have AERs which are the same as the Gross Interest rate.

Does that mean that two contracts could quote "7.07% AER" (the 'former' type
above) and "7.00% AER" (the 'latter' type above), and a person who was going
to save regularly anyway (so that the contractual restriction to save
regularly has no effect on him) would get the *same* interest from both (7%
nominal)?
Even though the former account "looks" better, with a higher AER?  Isn't
that a failing of the AER rules??