Best Monthly Interest Paying ISA?

JAtherton

Hi there,

I currently own an ISA with Halifax which pays interest gross, and since I will be going to University in September this will be pretty much useless as all the money will be leaving the ISA at this point. I was wondering whether there were any good ISA's out there which pay the interest monthly so I'll be able to get interest for the next 5 ish months.

Ideally would want Online Access and the link to a Cardcash account as I currently get my wage from my job paid into a Cardcash account, and then I transfer some of this money into my ISA to gain more interest.

As you can probably tell I'm not incredibly clued-up on this subject, and I don't even know if monthly interest paying ISA's exist, but would appreciate any help in this matter.

itch_for_a_glitch

As long as its an ISA without ties (12 month bond etc) it will accrue interest while the money is in there.

JAtherton

In which case is it a matter of choosing whether to get interest net or gross upon opening the ISA?

As my current ISA only gives it gross.

phona

JAtherton wrote: »

In which case is it a matter of choosing whether to get interest net or gross upon opening the ISA?

As my current ISA only gives it gross.

All ISAs have gross interest. Net means the interest is paid with tax deducted, gross means it's paid without tax. ISAs don't deduct tax - that's the point of an ISA.

As for monthly vs annual interest: it doesn't really matter. The amount you get is calculated daily so you get the same amount however it's paid; just means you might have to wait a bit.
For example let's consider two accounts paying 2% AER where one pays monthly and one annually. If you have £1000 in for 1 month then withdraw it all you'd get:

Monthly interest: ~£1.60 in month 1; £0 for every other month
Annual interest: £0 for the first 11 months; ~£1.60 at the end of the year.

So the total is the same.
And if you were to close the account at any point during the year, you'd get the interest earned at the point of closure - no need to wait until the end of the year when interest would usually be paid.

JAtherton

Ahh thank you, that clears a lot up.

However how is the interest calculated then, as in my case I will have all the money in for the next 5 months, then withdraw pretty much all of it.

Is it money in the account at a certain date per month calculated for interest, then added up towards the total for the end of the year?

phona

It's calculated daily. So at a certain time each day they'll multiply your balance by your interest rate then divide that by 365. So in our £1000 at 2% example it would be about 5p per day. So they add up each of these 5p pieces then give you them at the end of the month or year (depending on how it pays). Therefore if the money is there for 2 days you get 10p, if it's there for 60 days (roughly 2 months) you get £3 and after your 5 months (call it 150 days) you get £7.50 - though you might have to wait the rest of the year to actually get it!

Of course, these numbers are very approximate - the banks use a few more decimal places!

Edit: In fact, since I rounded down to find my 5p per day figure and used only 30 day months, it'd be more than £7.50 but it's ok for illustrative purposes.