£5000 to invest

[123bernadett]

How much would I receive monthly/annually in interest if the rate is 2.5%aer? Thanks

[joggerjayne]

£5,000 x 2.5 / 100 = £125 per annum

£125 / 12 = £10.41 / month

[123bernadett]

And if I chose monthly interest would I get interest on £10.41 + £5000 for month 1,20.82 +5000 month 2 and so on?

[joggerjayne]

Yes, you would get "compound" interest ... meaning, interest on the interest

(as long as you did not keep withdrawing the interst, of course)

[factor-fiction]

I'm not sure I agree with joggerjayne on the last point-. I think the 2.5% AER figure takes account of the 'interest on monthly interest'. So if the money and accrued interest is left in each month the fund after one year would be worth £5000 + £125 interest = £5125.
Another way to look at it is to say that the monthly interest in month 1 will be less than £10.41- maybe nearer £10; then next month you'd get interest on £5010. And so on. By the year end the balance plus compound interest would have reached £5125.
I'm happy to be corrected though.

[joggerjayne]

Apologies, factor ...

You're quite right.

I'd glanced at the question and ignored the "aer"

Factor is correct ... the effect of an Annual Equivalent Rate is to simplify the whole calculation, and to tell you what you will receive at the end of one year.

Duuh, me !!

[Sandy-Wroe]

Then you'd pay tax on the interest. 40% I think

[buildersmate]

Probably not so. Normal UK bank and building society accounts are quoted net of basic rate tax, so nothing more to pay unless you are higher rate taxpayer- which would take off around another 20% from these figures.