Get 9.06% p.a. effective with bankwest's 12 month Term Deposit when interest is paid monthly. You can even get interest paid into another financial institution plus there are absolutely no fees! This account requires a low minimum opening deposit of $1,000.
Effective interest is the rate including compounding effect of payment frequency.
(Edited by scotty — remove tracking code from URL)
Yes I agree. Your original capital is entitled to the 8.70% at maturity, but the interest it generates every month (if interest is paid monthly) is not part of your original capital and is not subjected to the 8.70% interest. They will be subjected to a different rate which I could not find, but it's almost certain not 8.70%.
yep. misleading.
I agree, but it looks like it's the submitter doing the misleading rather than BankWest.
The effective interest rate calculation appears incorrect. Only the 12-month term has an interest rate of 8.70%. Although you may elect monthly interest payments on 12-month terms (to a separate account) according to the PDS, it cannot be added to the initial investment amount until maturity. This means a simple interest formula should apply.
The only way to compound the interest would be to have interest paid monthly to another account, then open a new term deposit with that interest payment (which would also be subject to another 12-month term). Given there's a $1,000 minimum investment, the initial investment would need to be around $138,000 to pay-off $1k/month in interest — plus there is no guarantee that the same rate will be available each month when it comes time to reinvest.
Interestingly, Cannex make the same miscalculation when indicating an effective yield of 9.05% for this term deposit on their website: http://www.cannex.com.au/1k-term-deposit-snapshot/ unless there's something I'm misunderstanding about the offer.
Agree with the others here. 9.06% indeed is misleading. Unlike typical savings account, interest on this term deposit is not compounded automatically (at least that's the impression that I got when I read the terms and conditions).
Ozpete, any comments? :)
(NB: He's usually good on this)
I am still confused with this as the T&C's aren't very clear, they say the term deposit rate is calculated daily, if you dont take the money out does it compound?? But if you do then you can invest it in a standard bankwest online account and get 7.75% (or 8.25%) if an intro rate.
If I take $1000 and with rough calculating and using 7.75 we get around 9.01% and 8.25% we get around 9.03% (while not the 9.06% its still nice - although this interest rate on the interest could change as its an at call rate)
As we have a Bankwest store just opened locally, and I need to visit in next few days I'll check the compounding "rules". If interest is paid monthly or quarterly, they must be some effective way why you would choose a longer interest payment term. ie why choose 3 monthly as you lose the compounding benefit that monthly gives.
Other banks/institutions change the headline rate down when you get monthly or quarterly payments
it is misleading.
I used to work for Bankwest and I too am confused by the posting of this offer as I understand the rate to be 8.7% if the funds are invested for 12 mths.
There is nothing misleading about this… the effective interest rate expresses an annual rate of interest taking into account the effect of compounding… Where as the regular interest rate of 8.70% doesn't.
But the point is, that you can't reinvest the monthly interest to compound it at the same rate. Or at least you aren't guaranteed, that come next month when your first interest is due, you won't get 8.70% for the next 11 months on that interest. Plus you need minimum of $1000 to open a new account with this deal ,so your monthly interest has to bigger than $1000, since you can't reinvest into your original account. And that's if they even let you open a second account, or a third…
Its bloody simple. Its a TERM deposit. Interest is paid on maturity. So each month you get 8.7%/12 (0.725%) added to the opening balance. There is NO compounding of the interest. Its paid on MATURITY at 12 months.
For deposits which have a term of 12 months, you may ask us
when you lodge or renew your deposit to pay your interest monthly,
quarterly, six-monthly or on maturity.
You may ask us to pay your interest:
(a) by crediting it to your Linked Account; or
(b) by adding it to the balance of your account at maturity.
Simple.
How did you arrive at this figure of 9.06%? Its very misleading. There is no guarantee that you will be able to reinvest your monthly interest payments back at the same rate (8.70%).
It should say 8.70% guaranteed, with the possibility of slightly higher return under certain assumptions.