ISA Interest

Goldendwarf

A bit confused. Will the interest you get on your ISA remain the higher or lower if you a)put all your money into the ISA at the beginning of the financial year b)drip feed it in over the year c)add it in one lump sum at the end of the financial year

turbobob

Interest is usually calculated daily, and so is dependent on the amount of time the money is in the account. When and how often interest is paid will vary - maybe yearly or annually etc. It might not tie in with when the financial year end falls.

If we assume it is paid annually at a rate of 5%, and you pay in £1000 the day before the interest payment date. You would not be due 5% on £1000. You would be due 1 days interest so, 5% divided by 365 days in a year x £1000 = about 14p interest. Instead of £50.00 if you'd invested £1000 at the start of the year.

I'm sure that example is not technically accurate but it gives a rough idea of how it works.

UproarUK

turbobob wrote: »

about 14p interest. Instead of £50.00 if you'd invested £1000 at the start of the year.

If 5% was the AER it would actually be less than 14p for one day, as to get £50 you would have earnt interest on the interest (compound interest). But yes, you are correct in what you are saying, to earn the maximum possible interest from your ISA allowance you need to deposit all £3600 at the start of the financial year.

Lokolo

UproarUK wrote: »

If 5% was the AER it would actually be less than 14p for one day, as to get £50 you would have earnt interest on the interest (compound interest). But yes, you are correct in what you are saying, to earn the maximum possible interest from your ISA allowance you need to deposit all £3600 at the start of the financial year.

Not all banks compound daily interest. Only one I know that does is Egg.

UproarUK

Lokolo wrote: »

Not all banks compound daily interest. Only one I know that does is Egg.

Yes, the above assumed that interest would be compounded least once at some point throughout the year.