Closing A Fixed ISA

johnsmithy
johnsmithy Posts: 104 Forumite
in Budgeting & bank accounts
Hi,

Sorry for being thick, but can someone explain to me how a Fixed ISA works, in terms of closing it?

Currently, I have an ISA with the post office, but have fallen on hard times, so may need to close it.

For example, if I invested £5000 into the ISA and I closed it early on a 3 year fixed term, how much would I lose if I lost 270 days worth of interest? I am just interested in how it works.

If someone could provide a financial example, it would be appreciated as the examples online of the penalties faced are at best, rather vague.

Thanks,
johnsmithy

Comments

  • grumbler
    grumbler Posts: 58,629 Forumite
    Name Dropper First Post Photogenic First Anniversary
    johnsmithy wrote: »
    ....
    For example, if I invested £5000 into the ISA and I closed it early on a 3 year fixed term, how much would I lose if I lost 270 days worth of interest? I am just interested in how it works. ...
    Do you not think that it's worth saying what interest rate it is?

    You will not make a big error if you multiply the rate by 270/365, then by £5000:

    £5000*R*270/365
  • johnsmithy
    johnsmithy Posts: 104 Forumite
    grumbler wrote: »
    Do you not think that it's worth saying what interest rate it is?

    You will not make a big error if you multiply the rate by 270/365, then by £5000:

    £5000*R*270/365

    From what I can gather, the rate is 1.91%.

    Thanks,
    johnsmithy
  • Zanderman
    Zanderman Posts: 4,683 Forumite
    First Anniversary Name Dropper Photogenic First Post
    edited 18 April 2015 at 8:35AM
    It's not difficult to work out, and grumbler has given you the basics.

    £5000 x 1.91% = £95.50 interest at the end of the first year.

    One year = 365 days. Penalty for early closure is 270 days interest of current balance.

    So, if still in first year (current balance 5000) the penalty is 270/365 x 95.50. Which equals £70 penalty.

    If you're already in year 2 or year 3 then the balance has increased with interest from year 1 and/or 2 already added, so the penalty figure will be slightly higher.

    Edited to add:     So if you close the account within the first year you'll get back less than you put in. Close after the first year and you'll still get a modest profit. So if you are still in the first 12 months it would be worth hanging in there until at least the first anniversary if you can.
  • eskbanker
    eskbanker Posts: 30,938 Forumite
    First Anniversary Name Dropper Photogenic First Post
    Zanderman wrote: »
    So if you close the account within the first year you'll get back less than you put in.
    Only if closed within the first 270 days - once it reaches 270 days then the interest earned outweighs the closure penalty (just because interest isn't paid until year end doesn't mean it isn't earned pro rata before then).
  • PaulW922
    PaulW922 Posts: 1,037 Forumite
    First Post First Anniversary Combo Breaker
    It depend son the terms of the individual account. Why not call up the provider and ask them?
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