Daily interest - Does this look right?

peterwhite097

Sorry, I'm a bit clueless about how daily interest stacks up. Can any clever folks help?

I opened an A&L ISA on 30/3/10 with £3600 which has been running at 3.5%. It is daily interest, and interest paid out on 1/3/11.

I put in £3600 on 30/10/10, taking it to £7200, then a further £1500 on 15/1/11 taking it £8700 when it paid out on 1/3/11. The interest received on this was £162.85.

Question is, due to the daily interest and the fact I put in large sums later on in the year, is this the reason I didn't get the £300 i guess i was expecting?

Many thanks

Lokolo

Yes. You don't get interest based on the amount when interest is paid. You get it based on the average in the account over the year.

For 7 months you had £3,600.
For 4 months you had £8,700 approx.

Derivative

Each day you'll get interest on whatever's in your account plus any outstanding interest, multiplied by (1.035^(1/365) - 1).

Above calculation works out at about 0.00009, or 0.009% per day.

I've played in Excel and got your interest at £163.83 using figures you've quoted. I'd mark up the £1 discrepancy to money going in 1 day later or my model being slightly out, not knowing how A&L calculate interest exactly.

Using an average you'd get £164.35.

Fairly close, but it gets more significant at higher interest rates and/or with higher principal.

peterwhite097

What can i say? You people are stars..Thank you very much.:T