# Brand new for Plus members — earn 3% interest on cash, up to £4,000 :plus_:

It’s AER

### How does the 3% rate work? ‍

This is a 3% annual equivalent rate (AER) which is paid to you on a monthly basis. You can put it toward your next investment, reduce the cost of your membership, or withdraw it anytime and have lunch on us.

I believe this does include compounding. Incidentally I rarely have the max balance in, I tend to buy stocks with it

I don’t think you can assume most people keep £4K in their account at all time just to max the interest

To be fair, I don’t think Freetrade have ever claimed it would be £10 per month, or that it would cover your plus subs. It was members of this forum who jumped to that conclusion without out actually calculating AER.

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Like this one?!

£4000*3%=£120/12=£10

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Yeah, but that’s not 3% AER

AER takes compounding into account, however as it stops compounding at £4K you are never going to get the full £10 per month

If you work that calculation backwards from an AER of 3% using 12 payments per year you end up with ~ 2.96%

so on £4K you’d get ~£118.38 ish per year

which is approx £9.72 - £9.73 ish for a 30 day month (I got £9.73, but I rounded some figures in my calculation, £9.72 is most likely correct)

Edit: in a 31 day month you’d get £10.05 so you do make the full £10 some months, But it averages out just under £10

Maybe you could game the system by cancelling plus in 30 day months

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Think most people can live with a £1.62 difference

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Yeah, it’s no big deal. But it’s nice to be able to see where the £9.72 for this month came from

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What it does mean is your plus subscription is costing you 17p a month rather than being free

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I didn’t realise the 3% interest gets paid into your ISA after you open one. As all interest is earned from your balance on the GIA, doesn’t it make sense to have interest paid into the GIA account?
After chatting to Customer Service, there are no plans to make it possible to choose where interest is paid. It will always be the ISA if you have one, only fix for me is to close my ISA later this year if not added.
Give us a choice where interest should be paid.

It’s going to be better to have the interest paid into your ISA as this will increase your amount of tax exempt cash that you have available to invest.

But if you don’t want this, you can always ask customer services to move the cash from your ISA to your GIA. But the only reason I could think of doing that is that you want to invest in shares that cannot be held in an ISA?

Freetrade just give preference to interest earned to your ISA - so the interest is paid into the account on which it was earned.

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Understand the tax benefits of having the interest paid into the ISA but everyone may have a different investment strategy on the GIA vs. ISA. Mainly for me the ISA has some longer term investments. The GIA has riskier positions in the short term and would rather the interest payments reinvested here as these stocks are not available within an ISA.

Not saying this is everyones investment strategy but giving the flexibility of where interest is paid based on their circumstances. For example, never heard of a bank charging overdraft fees to the credit card you also hold with them, as they are separate products…

If you have £2k in your ISA and £2k in your GIA then you will get 50% interest paid into each account, as states:

Let’s say you are waiting to invest £5,000 across your two Freetrade accounts: you have £3,000 cash in your ISA and £2,000 in your GIA. We will apply the interest to the full £3,000 in the ISA first, and then to the £1,000 remaining in your £4,000 cash cap from the GIA.
The interest payment will then be split accordingly into the two accounts.

The only way is to reduce your GIA account holdings so interest is paid to your GIA and ISA? A toggle to set your preference with ISA as default would be ideal
Assuming I’m in the minority requesting this feature as I searched other threads before so never likely to happen.

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I have both the GIA and ISA, I get paid my interest into each separate account,on the cash I hold in each account.

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Most people would want it to prefer the ISA, as that adds money to the ISA without affecting the annual limit on contributions.

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Yeah, if you want the money in your GIA you can always remove it from the ISA and pay it into the GIA and you’ve not lost anything by doing that apart from time.

But the benefit of having it paid into the ISA is that you get additional money in the account without affecting your annual limit, so for most people it’s beneficial.

The only downside for me if that it then looks like the ISA is performing better than it really is because the balance is increasing every month by ~£10 and that money is taken from your bank by DD, so the “up since you began investing figure” is slightly misleading (it excludes deposits and is supposed to represent earnings from investments).