Understanding interest paid - Santander Direct ISA issue 9

Mela121

Hi Everyone,

The other month I got my statement through from Santander on my Direct ISA issue 9. My balance by March 2013 was £9,548.26, of which £179.40 was interest. I was a little confused as to why the interest was as low at it was and was wondering if anyone here could help me understand how it was calculated.

Here's the info:

ISA pays a variable rate of 3.30% AER, inc a bonus of 2.80% AER for 12months (account opened in July)

Transfers:

6thJuly 2012: opening balance of 3,728.86 (transfer from 2011/2012 HSBC ISA)

6th Aug: pay in £3000

11 Aug: Santander takes out and pays back in opening payment of 3728.86 (they say to avoid "interest gaps")

13th Aug: pay in £2640

2nd Mar: Interest paid by Santander £179.40


Also since the 2.80% bonus is valid until July should I hold off transfering till then? And if I do transfer will I lose any interest?

Many thanks

david78

I make it about £181 so not far off.

I would wait until July and get 2.8% until then. If you do transfer before then you won't lose the interest. It will be added to your account on the day of the transfer.

CLAPTON

Mela121 wrote: »

Hi Everyone,

The other month I got my statement through from Santander on my Direct ISA issue 9. My balance by March 2013 was £9,548.26, of which £179.40 was interest. I was a little confused as to why the interest was as low at it was and was wondering if anyone here could help me understand how it was calculated.

Here's the info:

ISA pays a variable rate of 3.30% AER, inc a bonus of 2.80% AER for 12months (account opened in July)

Transfers:

6thJuly 2012: opening balance of 3,728.86 (transfer from 2011/2012 HSBC ISA)

6th Aug: pay in £3000

11 Aug: Santander takes out and pays back in opening payment of 3728.86 (they say to avoid "interest gaps")

13th Aug: pay in £2640

2nd Mar: Interest paid by Santander £179.40


Also since the 2.80% bonus is valid until July should I hold off transfering till then? And if I do transfer will I lose any interest?

Many thanks

how much interest were you expecting?
how did you work it out?

YorkshireBoy

Mela121 wrote: »

...was wondering if anyone here could help me understand how it was calculated.

Fundamentally, you only earn interest on the money in the account (just in case you were expecting to see something like £9,368.86 x 2.8% = £262.83).

You've only 3 calculations to do...

£3,728.86 x 2.8% / 365 x n, where n= number of days between 6th July and 6th August

£6,728.86 x 2.8% / 365 x n, where n= number of days between 6th August and 13th August

£9,368.86 x 2.8% / 365 x n, where n= number of days between 13th August and 2nd March

Add 'em up and there's your interest.

Just out of interest (if you'll pardon the pun!), what did you 'think' it would be?

Sensory

Let's do it!

0.033 / 365 x £3728.86 = 0.337 (33p for 31 days = £10.23)
0.033 / 365 x £6728.86 = 0.608 (60p for 7 days = 4.20)
0.033 / 365 x £9368.86 = 0.847 (84p for 201 days = £168.84)

Even rounding down the pennies, I get £183.27, so there's something slightly off with my calculations (besides not rounding 0.033 / 365).

david78

There were 366 days in 2012. Does this account for it

Mela121

Oh wow, thank you so much guys! That really helps me understand things much better :T

To my shame I was thinking along the lines of "total paid in x 2.80%" though I knew it wouldn't be that much, since it was variable - shows my lack of knowledge about how its calculated, but now I know, thanks!

Just out of interest is it best then to pay money in a little at a time or in one big chunk? or does it make no difference at all?

I'm thinking of going for the Aldermore 1 year fixed ISA, paying 2.25% AER, transfering in my previous years ISA - though given that my 2.80% bonus lasts till July is it worth sticking with Santander till then, even though it's a variable rate?

david78

Mela121 wrote: »

Just out of interest is it best then to pay money in a little at a time or in one big chunk? or does it make no difference at all?

One big chunk put in as soon as you can beats lots of little ones (if you have the money).

badger09

Mela121 wrote: »

Oh wow, thank you so much guys! That really helps me understand things much better :T

I'm not sure you really do understand things much better :cool:

Mela121 wrote: »

To my shame I was thinking along the lines of "total paid in x 2.80%" though I knew it wouldn't be that much, since it was variable - shows my lack of knowledge about how its calculated, but now I know, thanks!

Just out of interest is it best then to pay money in a little at a time or in one big chunk? or does it make no difference at all?

You're not alone in thinking "total paid in x 2.80%"

But if you really did understand, you wouldn't need to ask whether a little at a time is better than one big chunk. It would be obvious that one big chunk at the beginning, is better than a little at a time, which in turn is better than one big chunk at the end

The fact that it was a variable rate is irrelevant here, as the rate didn't change. Its the time the money was in the account which affected the amount of interest you got.

Mela121 wrote: »

I'm thinking of going for the Aldermore 1 year fixed ISA, paying 2.25% AER, transfering in my previous years ISA - though given that my 2.80% bonus lasts till July is it worth sticking with Santander till then, even though it's a variable rate?

Are you considering Aldermore 1 year fixed rate for your previous year's ISA? Are you going to save in an ISA in during 2013/14?

saintalan

badger09 wrote: »

...

But if you really did understand, you wouldn't need to ask whether a little at a time is better than one big chunk. It would be obvious that one big chunk at the beginning, is better than a little at a time, which in turn is better than one big chunk at the end ...

Not necessarily if you drip feed a 4% regular saver ISA from a (say) Santander current a/c at 3%.

After tax you have earned more interest and at the end of the year its all in your tax wrapper:)

Cheers

Alan

badger09

saintalan wrote: »

Not necessarily if you drip feed a 4% regular saver ISA from a (say) Santander current a/c at 3%.

After tax you have earned more interest and at the end of the year its all in your tax wrapper:)

Cheers

Alan

You know that, I know that, and many other posters know that

However, it is quite clear from Mela121's posts that he/she hasn't even grasped the basics of how interest is calculated