First Direct ISA

SparciaM

This ISA is showing as 5.85% AER (6.125% tax free) then 4.50%AER (4.41% tax free) variable from June 2009.

So does it mean if you kept it in until June 2009 and then transferred you'd get 6.125%.

But if you kept it in longer than June, you'd get 6.125% then 4.41% equilevant to 5.85% ?!?

I'm confused as to what rate is right. My ISA is 6.01% and just wondering if moving it to first direct would get me 0.125% more than what I'm getting.

YorkshireBoy

Interest is accrued daily at the gross p.a. rate on all accounts.

The quoted AER is just an illustrative figure and is based on certain assumptions, the most important being "what the rate would be" and "if interest was paid and compounded once per year".

With this account, you should aim to shift the funds elsewhere once the gross p.a. rate falls. Of course, they hope that lethargy and inertia will prevail and you remain with them on the lower rate.

That said, I wouldn't move for anything less than 0.25% AER, and I'd probably want 0.35% or more, especially if there was a danger of interest lost in transit or the provider had a history of poor customer service (as a great many have had this tax year).

Milarky

6.125% pa = 0.51041[6]% per month
4.41% pa = 0.3675% per month

(1.0051041[6])^9 x (1.003675)^3 = 1.058476%

In other words the '5.85%' figure comes from nine months (assumed) investment in the fixed rate and 3 months at the current variable rate (assumed unchanged) - a 12 month 'average'