Interest calculation on Fixed Rate ISA

strawberrylane

Interest *is* compounded on the Halifax fixed rate isa. I don't have time right now to expand on this but I have annual statements which prove this as well as written confirmation from the Halifax. I'll post more to clarify when I have some free time.

strawberrylane

Further to my previous post, interest is indeed compounded on the fixed rate Halifax ISA. Although interest is not credited until maturity, the AER and gross interest rates advertised by the Halifax for this account are always the same as one another. For instance, the current 4 year fixed rate offering is advertised as "5.55% AER/gross", which in itself means that interest has to be compounded (according to BBA guidelines).

I have five Halifax fixed rate ISA accounts and receive an annual statement for each account on the anniversary date. The interest has always been compounded on all of these accounts. Here is an example:

I opened a 5-year Halifax fixed rate ISA on 12th February 2003 (so it's due to mature on 12th February 2008). The amount I invested came from an ISA transfer and was £6,208.66. The rate I fixed at was "4.30% AER/gross". (let's leave aside the argument about whether fixing at that rate was wise or not!). I have had 3 annual statements for this account, as follows:

statement date: 11th February 2004
amount invested: £6,208.66
interest earned to date: £266.97

statement date: 11th February 2005
amount invested: £6,208.66
interest earned to date: £545.42

statement date: 11th February 2006
amount invested: £6,208.66
interest earned to date: £835.85

As you can see, this represents compounded interest.

I do not know why the Halifax only pay the interest on maturity for this account. But it is definitely compounded.

Before I started the accounts, I wrote to the Halifax for confirmation and a "Customer Relations Manager" wrote back stating: "I can confirm that the interest on the Fixed Rate ISA account is compounded".

HTH.

Cannon_Fodder

Found this definition of AER...

** AER stands for Annual Equivalent Rate and illustrates what the interest would be if interest was paid and compounded each year.

maybe AER wasn't used in the days when they didn't compound?

Mikeyorks

Strawberrylane
Grateful for that - thank you. Nice refund from HMRC earlier today - and hopefully you've just increased my ISA expectation by around £600.

Don't quite comprehend why I get no statements (ISAs bought by an amalgam of 'phone / online) nor why the online T&Cs, from my Portfolio, disappeared some while ago.

Did get an early response to my Email from Halifax - asking I ring the number I 'phoned yesterday. Declined with thanks - to get another note advising the Email facility was for Registration enquiries only. Pointed out the multiple 'Subject' drop down box indicated otherwise ... so it's back with them for a response. Which, I trust mirrors yours ..... appreciated, thanks

RayWolfe

Chrismaths wrote:

Contract T&Cs will always supercede the scribblings of low-skilled salesman.

I would normally agree with that but, as I explained, my statements confirm that it is compound ... and now supported by Strawberrylane.

Chrismaths

Sure - I took what was said here as gospel.

I looked at the Halifax website and the AER and gross are the same, so that means it must be accrued (and compounded) annually.

Mikeyorks

A conclusion!

Got a letter from one of the Halifax CS Managers this morning - in reply to my Email (??). Nice old fashioned way to do it - but contained the good news 'it's compound'. So that's my forward projections £600 the better off.

And as the same post had a payable order from HMRC for close to the same value (cute of them to hit the weekend?) .... I'm feeling fiscally content, today!;)

Thanks for your replies. And, yes, I have suggested to them a little specific info on the ISA portion of their site, would be helpful.