Banking & Savings, Insights

Why Does Bank Interest Suck?

flik eco finance why does bank interest suck

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.

These are:

  • 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.

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About Jermaine Hagan (The Plantsman)

Jermaine Hagan, also known as The Plantsman is the Founder of Flik Eco. Jermaine is the perfect hybrid of personal finance expert and nemophilist. On a mission to make personal finance simple and accessible, Jermaine uses his inside knowledge to help the average Joe, Kwame or Sarah to improve their lives. Before founding Flik Eco, Jermaine managed teams across several large financial companies, including Equifax, Admiral Plc, New Wave Capital & HSBC. He has been featured in several large publications including BBC, The Guardian & The Times.

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