2 questions on the Coventry ISA

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rosalinda88
rosalinda88 Posts: 19 Forumite
in ISAs & tax-free savings
I was looking at :money: Best Buy for Cash ISA and had a look on Coventry's T&C's

Can I just make sure I have understood correctly?

It is 120 days notice to either close the account meaning getting as cash and losing tax free status OR to transfer to another cash ISA. I have transferred before but only with easy access ISA so I am curious, how would it work with in this case? I put in transfer request at institution to receive from Coventry and they proceed after the 120 days? Or I have to put in a notice and once 120 days are done I should put in a transfer request?

This 2.4% will be compounded over the 5 years meaning I will get 12.5% if I leave until maturity?
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  • masonic
    masonic Posts: 23,408 Forumite
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    Transfer forms usually have a section where you can instruct the ISA manager to serve the appropriate notice, so you would submit the form as usual and your transfer would actually happen when the notice period is up.
  • BeansOnToast_2
    BeansOnToast_2 Posts: 93 Forumite
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    It's not 120 days notice. It's no notice but 120 days loss of interest.
    You can close your account without notice but this is subject to you incurring a charge equal to 120 days' interest on the balance in this account at the time of the closure
  • rosalinda88
    rosalinda88 Posts: 19 Forumite
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    BeansOnToast wrote: »
    It's not 120 days notice. It's no notice but 120 days loss of interest.

    Yes, I read it again and you are right! You lose 4 month interest when cashing or transferring out.
  • Gloomendoom
    Gloomendoom Posts: 16,550 Forumite
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    rosalinda88 wrote: »

    This 2.4% will be compounded over the 5 years meaning I will get 12.5% if I leave until maturity?

    I'm not quite sure what you mean here. You will get 2.4% if you leave until maturity, on your deposit(s) and on the the interest they earn.
  • rosalinda88
    rosalinda88 Posts: 19 Forumite
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    Gloomendoom wrote: »
    I'm not quite sure what you mean here. You will get 2.4% if you leave until maturity, on your deposit(s) and on the the interest they earn.

    Surely it can't be 2.4% at maturity (2020)- why wait 5 years for 2.4% when you can easily do 1.6% for 1 year. If you repeat at 1.6% for the next 4 years (assuming the annual interest is received on this account of course) second year's 1.6% gives compounded 3.2% over 2 years, third year's 1.6% gives 4.8%, etc. so by 202 you would have 8.2%.
  • Archi_Bald
    Archi_Bald Posts: 9,681 Forumite
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    rosalinda88 wrote: »
    Surely it can't be 2.4% at maturity (2020)- why wait 5 years for 2.4% when you can easily do 1.6% for 1 year. If you repeat at 1.6% for the next 4 years (assuming the annual interest is received on this account of course) second year's 1.6% gives compounded 3.2% over 2 years, third year's 1.6% gives 4.8%, etc. so by 202 you would have 8.2%.

    This is not how interest and compounding works. You also seem to be confusing AER and return - but your calculations and your understanding are just plain wrong.

    The interest rates quoted for an account are AER, which stands for Annual Equivalent Rate. You will also see gross and net rates mentioned but you generally just need to use the AER. AER gives you a like-for like comparison, and to find the better of 2 accounts is as simple as comparing the AER. 2.4% AER is more than 1.6% AER, always.

    You also need to take into account when interest gets paid - annually is the most common way for ISAs, but it could be monthly or some other interval - - it's all detailed in the T&Cs.

    In multi-year accounts, interest rates are not added up or comfuddled in some way. Your AER stays the same throughout your fixed term (except if the provider quotes different rates for different years, which they rarely do, and it certainly does not work by doubling etc the AER).

    Here's some worked numbers for you, assuming ISAs that pay interest annually, and assuming the interest rate stays the same for 5 years (which would be the case for a 5-year fixed term/rate ISA but most likely not for an instant access one):
    Year	Balance at start        Interest 
        of year                 amount
1	£10,000.00	2.40%	£240.00
2	£10,240.00	2.40%	£245.76
3	£10,485.76	2.40%	£251.66
4	£10,737.42	2.40%	£257.70
5	£10,995.12	2.40%	£263.88
			      £1,259.00
			
1	£10,000.00	1.60%	£160.00
2	£10,160.00	1.60%	£162.56
3	£10,322.56	1.60%	£165.16
4	£10,487.72	1.60%	£167.80
5	£10,655.52	1.60%	£170.49
			        £826.01
  • rosalinda88
    rosalinda88 Posts: 19 Forumite
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    2 page reply to confirm what I said? You start off saying I don't understand, I'm wrong, etc. and then confirm the compounding of yearly 1.6% to 8.2% and 2.4% to 12.5% at the end of 5 years exactly as I had written. Great. :T
  • Archi_Bald
    Archi_Bald Posts: 9,681 Forumite
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    rosalinda88 wrote: »
    2 page reply to confirm what I said? You start off saying I don't understand, I'm wrong, etc. and then confirm the compounding of yearly 1.6% to 8.2% and 2.4% to 12.5% at the end of 5 years exactly as I had written. Great. :T


    Well, I certainly did not confirm what you said, and you still don't understand it.
  • Kernel_Sanders
    Kernel_Sanders Posts: 3,617 Forumite
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    edited 23 July 2015 at 8:03PM
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    rosalinda88 wrote: »
    It is 120 days notice to either close the account meaning getting as cash and losing tax free status OR to transfer to another cash ISA.
    You never pay tax on an ISA; that's the whole point of an ISA.
    rosalinda88 wrote: »
    Surely it can't be 2.4% at maturity (2020)- why wait 5 years for 2.4% when you can easily do 1.6% for 1 year. If you repeat at 1.6% for the next 4 years (assuming the annual interest is received on this account of course) second year's 1.6% gives compounded 3.2% over 2 years, third year's 1.6% gives 4.8%, etc. so by 202 you would have 8.2%.
    This is a nonsense. It's not 1.6% p.a., that's just what it equates to if you happen to take the 120-day closure penalty after around 12 months. The interest rate is clearly 2.4% per annum, less about 0.8% of the capital as a penalty should you close it before maturity.
    rosalinda88 wrote: »
    2 page reply to confirm what I said? You start off saying I don't understand, I'm wrong, etc. and then confirm the compounding of yearly 1.6% to 8.2% and 2.4% to 12.5% at the end of 5 years exactly as I had written. Great. :T
    All you've done is multiply 1.6 by 5 to arrive at a compounded interest of 8.2% over the 5 years. ArchiBald, who actually understands compound interest, arrives at a figure of 8.26%. So, exactly not as you had written.
  • rosalinda88
    rosalinda88 Posts: 19 Forumite
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    Never said you pay tax on ISA.
    1.6% is for leading 1 year, not Coventry.
    1.6 x 5 = 8 not 8.2

    Are you alright?
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