How much interest should I recieve?

nomoneyuser

Hi,

I took out a cash ISA with in July 2007. The rate was set as 6.05% AER gross, paid annually. I opened the account with a £30 deposit and made monthly desposits of £50 so the balance in June 2008 was £630. I was paid £18.74 interest.

I have been trying to figure out if the interest paid is correct but I can't make the figures work. As this is an ISA I am assuming there is not TAX to pay. A rough guesstimate would be say the interest would be £38. That's 630 x 6.05 / 100.

I've probably got my figures wrong. I do remember something at Maths class about Principle x Interest x something but I obviously nodded off at that point. Can anyone help me figure out if the interest paid was correct?

Thanx,
Dp.

ffacoffipawb

nomoneyuser wrote: »

Hi,

I took out a cash ISA with in July 2007. The rate was set as 6.05% AER gross, paid annually. I opened the account with a £30 deposit and made monthly desposits of £50 so the balance in June 2008 was £630. I was paid £18.74 interest.

I have been trying to figure out if the interest paid is correct but I can't make the figures work. As this is an ISA I am assuming there is not TAX to pay. A rough guesstimate would be say the interest would be £38. That's 630 x 6.05 / 100.

I've probably got my figures wrong. I do remember something at Maths class about Principle x Interest x something but I obviously nodded off at that point. Can anyone help me figure out if the interest paid was correct?

Thanx,
Dp.

Only £30 was invested for 12 months. The other £50 deposits were paid throughout the year and so were only earning interest for 6 months on average.

So halving your figure of £38 to get £19 gets nearer the amount you got paid. This is because the money only earned interest for 6 months on average and not 12.

mrsBagpuss

nomoneyuser wrote: »

Hi,

I took out a cash ISA with in July 2007. The rate was set as 6.05% AER gross, paid annually. I opened the account with a £30 deposit and made monthly desposits of £50 so the balance in June 2008 was £630. I was paid £18.74 interest.

I have been trying to figure out if the interest paid is correct but I can't make the figures work. As this is an ISA I am assuming there is not TAX to pay. A rough guesstimate would be say the interest would be £38. That's 630 x 6.05 / 100.

I've probably got my figures wrong. I do remember something at Maths class about Principle x Interest x something but I obviously nodded off at that point. Can anyone help me figure out if the interest paid was correct?

Thanx,
Dp.

Hi

I'll try and explain without confusing you and me;)

ISA's run from april to april so u opened yours after the start date (to get max interest the whole amount needs to be in for the full year.

your first deposit was july so that was in the longest (however many days in july ) then the next £50 so you then receive interest for the £80 and it accumalates monthly. you didn't have £630 for the complete year.

hope that makes sense its a bit complicated I know but your interest is prob correct

nomoneyuser

I think I see now. I started in July 2007. Interest in worked out in April by which time I had £280 so 280 x 6.05 = £17.54. That's nearer the figure with some allowance for compound interest which on this account worked out daily.

I wonder if there is a sting in the fact that the interest wasn't paid until Jul 2008?

So to really benefit from any ISA, I should try and open one in April with £3,600.

Thanx for the quick response.
Dp.

jem16

nomoneyuser wrote: »

I think I see now. I started in July 2007. Interest in worked out in April by which time I had £280 so 280 x 6.05 = £17.54. That's nearer the figure with some allowance for compound interest which on this account worked out daily.

I wonder if there is a sting in the fact that the interest wasn't paid until Jul 2008?

Not all ISAs pay interest in April. Some pay interest on anniversary of opening. If you didn't get your interest until July that was when it was calculated. The reason you have less than a year's interest is because you didn't have all the money in for a full year.

So to really benefit from any ISA, I should try and open one in April with £3,600.

A lump sum will give you the maximum interest.

CLAPTON

nomoneyuser wrote: »

I think I see now. I started in July 2007. Interest in worked out in April by which time I had £280 so 280 x 6.05 = £17.54. That's nearer the figure with some allowance for compound interest which on this account worked out daily.

I wonder if there is a sting in the fact that the interest wasn't paid until Jul 2008?

So to really benefit from any ISA, I should try and open one in April with £3,600.

Thanx for the quick response.
Dp.

just to explain how it works

you deposited 30 + 50 in july last year so you earn the full 6.05% on that i.e. £4.84
then you deposited 50 in august so you earn interest for only 11 months i.e. 50 x 6.05%x11/12 = 2.77
the in sept you deposit a further 50 which earned interest for only 10 months i.e.50 x 6.05% x10/12 = 2.52
then in oct you 50 deposit will earn only 9 momnths interest etc etc

so they obviously dont pay you 6.05% on the final balance but only money saved for the full 12 months etc.

Oblivion

This is the calculation I came up with, but it does assume that the £50s went in on the first of each month ...

31st July £30 + £50 = £80 x 6.05/100 x 31/365 = £0.41 int
31st Aug £80 + £50 = £130 x 6.05/100 x 31/365 = £0.67 int
30th Sept £130 + £50 = £180 x 6.05/100 x 30/365 = £0.90 int
31st Oct £180 + £50 = £230 x 6.05/100 x 31/365 = £1.18 int
30th Nov £230 + £50 = £280 x 6.05/100 x 30/365 = £1.39 int
31st Dec £280 + £50 = £330 x 6.05/100 x 31/365 = £1.69 int
31st Jan £330 + £50 = £380 x 6.05/100 x 31/366 = £1.95 int
29th Feb £380 + £50 = £430 x 6.05/100 x 29/366 = £2.06 int
31st Mar £430 + £50 = £480 x 6.05/100 x 31/366 = £2.46 int
30th Apr £480 + £50 = £530 x 6.05/100 x 30/366 = £2.63 int
31st May £530 + £50 = £580 x 6.05/100 x 31/366 = £2.97 int
30th June £580 + £50 = £630 x 6.05/100 x 30/366 = £3.12 int

Total interest £21.43


Dave.

Edit- should have added that this would be interest for the full 12 months you had the money in, not the partial ISA tax year to the 5th April.

nomoneyuser

Thaks for that calculation. The first £50 was made in August so I followed your steps (is it a leap year?) and got
£30.00 £0.15
£80.00 £0.41
£130.00 £0.65
£180.00 £0.92
£230.00 £1.14
£280.00 £1.44
£330.00 £1.69
£380.00 £1.82
£430.00 £2.20
£480.00 £2.46
£530.00 £2.72
£580.00 £2.88
£18.49

Which is very close to the £18.74 I was paid in interest.

Thanx again.
Dp.

Oblivion

nomoneyuser wrote: »

Thaks for that calculation. The first £50 was made in August so I followed your steps (is it a leap year?)

Thanx again.
Dp.

Yes, 2008 is a leap year which is why I started to use 366 days from January onwards. This assumes that your ISA provider treats February as 29 days and gives you 29 days interest, which seems to be the usual way of doing things. There are, however, some providers who stick with 365 days as a base even in a leap year, and give you no interest at all on the 29th Feb.

It would seem there is no hard and fast rule on this.

Dave.

YorkshireBoy

Oblivion wrote: »

It would seem there is no hard and fast rule on this.

Indeed. The BBA's relevant code of conduct seems to give providers a choice of using either 365 or 366 days!

http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=135&a=261&artpage=all (half way down the page, or search for the word "leap")