Cash ISA Discussion/Question

YorkshireBoy

jimladin wrote:

hi, hope someone can answer this for me as i'm not at all clued up when it comes to interest payments from the bank.

I recently opened a Mini Isa with the Alliance and leicester and plan to put some money into it this week. The rate of interest is 5.2%AER. Does this mean that at the turn of the financial year i will be granted 5.2% interest on all the money in the ISA at that point? Or is calculated in a more complex manner.

ie If i have £1000 in the account, will i get £52, or to qualify does the £1000 need to be there for a year?

Thanks in advance to anyone that can help clarify this for a youngster trying to sort his finances out

AER stands for Annual Equivalent Rate. So, very roughly speaking, your daily interest on your £1,000 will be...

£1,000 x 5.2% / 365 = 14.24p per day.

The interest earned on this account is calculated daily, but added once per year on 1st January, according to http://www.alliance-leicester.co.uk/directisauserguide/index.asp?page=page2.

grumbler

jimladin wrote:

The rate of interest is 5.2%AER. Does this mean that at the turn of the financial year i will be granted 5.2% interest on all the money in the ISA at that point?

No

Or is calculated in a more complex manner.

Yes, interest is calculated daily - the same way as for other types of accounts.

ie If i have £1000 in the account, will i get £52, or to qualify does the £1000 need to be there for a year?

For a year. Otherwise you get about 0.423% for each full month or about 0.0141% for each day.

jimladin

thanks for the VERY quick responses guys. Your help is greatly appreciated

musehead

Just a quick question.

I'm planning on opening the 5% B&B Mini-Cash ISA account with £3000. If, after a year I add another £3000 into the account, I should have £6150 in the account (including the interest from the previous year if the rate stays at 5%). From this point, will tax free interest be paid on the entire £6150 or just my £6000 allowance?

I'm just trying to decide if I should have my interest paid into the ISA or my nominated account.

grumbler

... on entire £6150, etc ...

isasmurf

Unless you need it for something, ALWAYS pay the interest into your ISA. It's extra money on top of your deposits that will itself earn tax free interest in future years. The beauty of compounding is that after a few years this is a significant amount.

tidyfinance

? So if I pay-in £3K now, and £3K after April 6th, that will be my limit, so where does the interest fit-in? ie I can't add that to my ISA or else I'd be over my limit (wouldn't I)?

isasmurf

No.

See the ISA FAQ

tidyfinance

Oh right, nice one.
Thanks :j

dan.jan

Just applied for the Alliance & Leicester mini ISA, and they offered me £50 for opening a current account too! Only stipulation was to deposit £500 a month, then £50 credited within 8 weeks. Seems rather generous!