Possible problem with fixed rate ISA

rb10

tramoia wrote: »

There is actually no compounding effect with this account. When I signed up for it I asked the branch assistant if she could check that the 4% was added to the capital sum each year. The answer is that it is not. So on 10,000 pounds initial investment you will get 1600 pound final interest added, which is a small amount less than if it was compounded each year.

No, I am fairly sure that you are wrong there. Although the interest will not show as being added to the account until the end of the term, you do earn compound interest as though it was added annually.

If you're unsure, get them to call you and ask them to do an interest illustration. They have a computer program that will do that.

tramoia

Its fine if you are correct. I only know that I asked if the interest would be added each year so I would get interest on the interest, and when I was told no I asked if she could check. She spoke to the branch manager who said that the 4% applied to the interest on the initial capital sum. The document itself only states that the sum will attract interest at a rate of 4% per annum over 4 years.

oldfella

it has to be compounded as they define it as 4% AER. If you dont get the compound interest you would win a complaint.

agsnu

http://www.bba.org.uk/content/1/c4/19/28/aer-3.pdf

Baalmaiden

Thanks, all. I don't want to repeat the mistake I made this year - finding I had inadvertently ticked a box asking for the interest on my M&S fixed ISA into another account and thus losing the compounding effect.

Jake'sGran

I did one with SAGA (they use Birmingham Midshires). It was £5000 and clearly states "1 yr fixed rate 6.76% Savings A/c". I received £270.
In the T &Cs it says "The interest rate is payable for the specified term from the date the account is opened".

Can anyone tell me why I didn't get £338? (I am a non taxpayer and this was not an ISA).

Reaper

The figures suggest they charged you tax on it. Did you fill out a form saying you needed it gross?

Contact them to confirm. Probably you will now need to fill out an R40 form to reclaim the tax, or do it in your tax return if you have been asked to fill one in this year.

ffacoffipawb

Jake'sGran wrote: »

I did one with SAGA (they use Birmingham Midshires). It was £5000 and clearly states "1 yr fixed rate 6.76% Savings A/c". I received £270.
In the T &Cs it says "The interest rate is payable for the specified term from the date the account is opened".

Can anyone tell me why I didn't get £338? (I am a non taxpayer and this was not an ISA).

Sounds like they taxed it ....

£5,000 * 6.76% = £338.

Less tax at 20% amounting to £67.60

Leaves £270.40 net of tax.

Did you fill in form R85 to receive interest gross?

Jake'sGran

Reaper wrote: »

The figures suggest they charged you tax on it. Did you fill out a form saying you needed it gross?

Contact them to confirm. Probably you will now need to fill out an R40 form to reclaim the tax, or do it in your tax return if you have been asked to fill one in this year.

Thank you. I always complete R85s but this seems to happen every year with one bank/bldg society or another. I will reclaim it on my brief tax return.