Confused about ISA interest...

SueC_2

On the 26th July I opened a Halifax Cash ISA, at 3.2%.

The account is now showing the interest rate as 3%.

But the interest applied on the 5th April works out at 2.03902% of the balance I had in there. Surely allowing for compound interest, it should be higher than the 3%, not lower?

Clearly I am missing something, but what????

Thanks all.

psychic_teabag

Well, the money has only been in the account for 7.5 months, so you can't expect a full year's interest. 2.039 * 12/7.5 is 3.26%

If interest is paid annually, there's no compounding. If paid monthly, the 3.2% is probably the AER, taking compounding into effect.

The_Enforcer

I also opened one of these Halifax Direct Reward ISAs in June of last year and transferred in an ISA from NatWest. The rate has been showing as 3% (since initial Halifax online banking gremlins were resolved), which is the correct ongoing rate. In order to get the extra 0.2% you have to keep the ISA open for 12 months whilst you pay in £1k each month into their current account.

Therefore, like yourself, I have received interest at the end of the tax year and I am expecting the extra 0.2% upon the anniversary of funding the account. If you don't have the current account or have not been paying into it then you won't qualify for the 0.2% bonus.

SueC_2

psychic_teabag wrote: »

Well, the money has only been in the account for 7.5 months, so you can't expect a full year's interest. 2.039 * 12/7.5 is 3.26%

If interest is paid annually, there's no compounding. If paid monthly, the 3.2% is probably the AER, taking compounding into effect.

So it's really quite simple when you understand it! Thank you.

SueC_2

The_Enforcer wrote: »

I also opened one of these Halifax Direct Reward ISAs in June of last year and transferred in an ISA from NatWest. The rate has been showing as 3% (since initial Halifax online banking gremlins were resolved), which is the correct ongoing rate. In order to get the extra 0.2% you have to keep the ISA open for 12 months whilst you pay in £1k each month into their current account.

Therefore, like yourself, I have received interest at the end of the tax year and I am expecting the extra 0.2% upon the anniversary of funding the account. If you don't have the current account or have not been paying into it then you won't qualify for the 0.2% bonus.

I do have the current account, and have been paying in £1k a month (to get the £5 reward), so it looks like I have another little bit to look forward to in a few months.

Thank you.