Newbie Question On Interest

WitNick

As it is the end of the 09/10 tax year. If I opened an ISA today with say £1,000 at 3.5%. Does that mean I would be paid interest of £35 on April 5th, even though I've only had it open for 11 days ish?! Or does it need the 12 months to accumulate somehow?

Primrose

No, sadly you won't get £35 interest on April 5th so there's no point opening an account now in the hope of grabbing £35 in a few days time. Interest on savings accounts accumulate on a daily basis, and if you open a savings account and close it at a later date, interest will be paid out on your balance up to the date of closure.

WitNick

Ah I see. So 3.5% annual interest works out at 0.010% of your balance daily.

So the only real point of opening an ISA now is if you can max out the allowance in order to begin gaining interest to be earned by the end of the 10/11 tax year, whilst also preserving the ability to top it up with another £5,100 (in cash) along the way

Sanzai

WitNick wrote: »

Ah I see. So 3.5% annual interest works out at 0.010% of your balance daily.

So the only real point of opening an ISA now is if you can max out the allowance in order to begin gaining interest to be earned by the end of the 10/11 tax year, whilst also preserving the ability to top it up with another £5,100 (in cash) along the way

Yes, as interest is compounded and worked out daily, each day the total money in your account will be multiplied by a factor calculated as the 365th root of 1.035 (which is roughly equal to 1.0000943).

As you say, if you don't use the 2009/10 tax year allowance it is lost, and in the long-term any 'lost opportunities' start to make a greater and greater difference in the interest you 'lose out on'.

Eco_Miser

WitNick wrote: »

So the only real point of opening an ISA now is if you can max out the allowance in order to begin gaining interest to be earned by the end of the 10/11 tax year, whilst also preserving the ability to top it up with another £5,100 (in cash) along the way

You don't need to max out the allowance, £1000 now would mean £35 in a year's time, plus upto £5100 saved next year (£6100 plus interest). If you wait till after 6 April, you're limited to just the £5100.

david78

Its funny how we get this question every year. I wish it worked like that. I would move my money around every few weeks and be rolling in cash by now :rotfl:. You have some good advice above from the other posters. Save what you can in your ISA before end 5 April. Then save what you can next tax year. Don't save nothing just because you can't save the whole amount.

Oh ... good luck.

WitNick

The stupid thing is that I'm quite finance savvy now (Stop laughing )

I live by my budget and have managed to pay of £30k debt (acruued as a clueless student) in 3 years and will be debt free in a couple of months, a few month before my 30th birthday, which was the goal (YAY)

So now I'm moving onto savings and investments to build wealth and I suppose it's back to basics seeing as this stuff is not taught at any level of education, although I understand that is due to change.

As a society we really underestimate the lack of basic finance knowledge that people have and yes we have the internet now and I've always said there's no excuse for ignorance anymore due to the amount of information available to us but the problem is the reverse now, trying to filter out the good advice from the bad. That is why it's so important for use to have active user forums such as this. well done MSE and all it's contributors