It's pretty easy to forget that banks don't exist to make you money, they exist to make themselves money with your money. This sucks, but it's the truth. That's why the tiny 0.3% of interest you get on your current account is useless. The funny thing is...some bank accounts actually pay you zero interest for keeping (using) your money.
So How Does Interest on Bank Accounts Work?
The interest you earn on the money you keep in your bank account is also known as savings interest, and is usually nothing life changing.
When you open a bank account, the bank will let you know how much interest you will earn on your money. They normally call this the AER, Annual Equivalent Rate!
There are a few things that have an affect the amount of interest you will make on the money in your account.
- If the money is taxable
- How much you pay in
- How often interest is paid to you
Your bank will tell you the amount of interest they will pay you by using either the Gross Interest Rate or the Net Interest Rate.
Now, AER otherwise known as the Annual Equivalent Rate is the actual interest rate you will pay before tax. It will be lower after tax if you don’t use an ISA savings account.