Problems with First Direct ISA interest - please help

laurat

I transferred into the First Direct ISA which was offering 5.5% (I think) interest last year until 15th Feb, when it falls. Thus I've been arranging to transfer it out to another provider.

However, I've just checked my FD account online and it appears I've been receiving interest monthly. Two things are bothering me about this:

1) I am 99% sure that when I signed up for this ISA interest would be paid annually (perhaps around the time that the interest rate falls). Can anyone confirm this belief (or prove I've gone bonkers!)?? I've called FD and they argue that it should be monthly.

2) On my online account there are transactions showing the interest being added on once a month since I've been with them (as you'd expect if receiving interest monthly). However, I've never seen these transactions listed before - it's like they've been added on and back dated!

If anyone can shed some light on this I'd be really grateful as am more than a little confused.

Thanks

BertieMeldrew

My interest has been added each month and this showed in my online account each month... I guess I never considered that a problem. Why do you believeit is (am I missing something?)

I'm also looking to transfer out... but I'm not sure you can do that until April (can you?)

laurat

Thanks for your reply.

BertieMeldrew wrote:

My interest has been added each month and this showed in my online account each month... I guess I never considered that a problem. Why do you believeit is (am I missing something?)

Its not really a problem in theory, but I don't appear to have earned as much interest as I should have. Does everone else's First Direct ISA pay interest monthly?

BertieMeldrew wrote:

I'm also looking to transfer out... but I'm not sure you can do that until April (can you?)

Yes, you cam transfer whenever you like throughout the entire tax year. You just have to make sure you action it as a transfer rather than a withdrawal (in order to retain the money's cash free status).

Laura

grumbler

laurat wrote:

...but I don't appear to have earned as much interest as I should have.

http://www.firstdirect.com/saveinvest/mini_cash_isa.shtml :

5.37% tax free, equivalent to 5.50% AER ... interest calculated daily and paid monthly

I am absolutely sure that the interest you have got is equivalent to 5.50% AER. You can calculate approxmate monthly interest as

eithere
5.37%/12=0.447%
or
(1+5.50%)^(1/12)-1=0.447%

In fact monthly interest can vary slightly because of different nomber of days in different months: 0.412%/0.441%/0.456% for 28/30/31 days.

Caped_Avenger

laurat wrote:

However, I've just checked my FD account online and it appears I've been receiving interest monthly. Two things are bothering me about this:

1) I am 99% sure that when I signed up for this ISA interest would be paid annually (perhaps around the time that the interest rate falls). Can anyone confirm this belief (or prove I've gone bonkers!)?? I've called FD and they argue that it should be monthly.

2) On my online account there are transactions showing the interest being added on once a month since I've been with them (as you'd expect if receiving interest monthly). However, I've never seen these transactions listed before - it's like they've been added on and back dated!

1) No, that's not the case. FD used to pay interest quarterly on the ISA, then when the eISA was introduced, they changed to paying interest monthly. This also affected existing (non-e) ISAs. My last quarterly interest payment was in April '05, then started receiving monthly in May '05.

2) Highly unlikely that this would happen, if it did it would probably say something different to Gross Interest next to the figure, it would probably say 'interest adjustment' or something next to it.

laurat wrote:

Its not really a problem in theory, but I don't appear to have earned as much interest as I should have. Does everone else's First Direct ISA pay interest monthly?

As per my answer to 1) above. Yes, every fd mini cash ISA pays interest monthly. This is regardless of whether they are e-ISAs, or the old standard ISAs

laurat

Thanks very much for your replies.

It seems I was going mad after all then! Thanks for those calculations grumbler, I shall certainly check the interest situation again.

Wychwar

Hello Laurat and everyone else,

I have at present concerns about how ISA interest is calculated. In my case a 1 yr fixed rate (6.15%) ISA appears to have had interest added at a simple 6.15% calculated over 364 days, not 365. The result of my calculation is 40 pence greater than the interest that has been credited to the account. I am querying how the provider calculates interest.
I have found a very interesting (sorry!) website. See below.
http://plus.maths.org/issue11/features/compound/index.html
If one uses the formulas quoted some interesting discrepancies arrise.
Regards All,
Wychwar