Anybody good at working out compund inerest please??

eck2003

I'm trying to work out the best savings account strategy but my maths is a bit rusty.
I've got £50,000 in an internet savings account but it only pays 4.2% net interest just now so I tried to calculate different strategies using todays interest rates and assumed for the calculation that they would stay fixed over the next 5 years to work out what the difference in returns would be.
According to my calculator if I leave the £50,000 in this account and forgetting about inflation it will be worth £61,306 after 5 years.
Option 2 is taking out 2 ISA's per year, one for me and one for my wife with an interest rate of 6.05% the remainder in a high interest account paying 4.88% net interest so the ISA's increase by £6000 per year and the savings decrease by the same amount per year and the grand total after 5 years I calculate as £62,465.
Option 3 is to just put the whole lot into the high interest savings account and it works out to £63,450 after 5 years which seems to beat the ISA route??
Is this correct or have I made a cockup in my calculations somewhere??
Help Please.

oldfella

assuming you pay tax avoiding 20% by putting as much as possible in ISAs will usually give the best return

jem16

eck2003 wrote: »

I'm trying to work out the best savings account strategy but my maths is a bit rusty.
I've got £50,000 in an internet savings account but it only pays 4.2% net interest just now so I tried to calculate different strategies using todays interest rates and assumed for the calculation that they would stay fixed over the next 5 years to work out what the difference in returns would be.
According to my calculator if I leave the £50,000 in this account and forgetting about inflation it will be worth £61,306 after 5 years.
Option 2 is taking out 2 ISA's per year, one for me and one for my wife with an interest rate of 6.05% the remainder in a high interest account paying 4.88% net interest so the ISA's increase by £6000 per year and the savings decrease by the same amount per year and the grand total after 5 years I calculate as £62,465.
Option 3 is to just put the whole lot into the high interest savings account and it works out to £63,450 after 5 years which seems to beat the ISA route??
Is this correct or have I made a cockup in my calculations somewhere??
Help Please.

Your calculations are fine.

Your main problem is the fact that you can't dump the whole lot into ISAs so you have to do it over a few years. As you have worked out it's going to take time but eventually the ISA will be the best route.

Option 4 - 2 Mini cash ISAs per year plus 2 Mini S&S ISAs uses up £14k each year. Obviously the S&S ISA is more risky and you would need to think about keeping that part invested for at least 5 years.

masonic

I'm not sure how you've arrived at your calculated balances, but I make them:

Option 1: £61,419
Option 2: £64,666
Option 3: £63,450 (I agree with you on this one )

It would make no sense if putting your money (even a small portion of it) in an account paying a higher rate of interest resulted in a lower return, as it appeared from your Option 2/3 balances.

You might also want to consider, for example, YBS's 7% regular saver, which pays 5.6% net. You could pay £500 per month into it until the balance approaches the maximum of £20,000, then reduce your contributions to avoid the account maturing.

Jonbvn

I have not checked your calculations. However, have you considered index linked savings certificates? With RPI high at the moment, they look good (IMHO), and they are tax-free.

eck2003

Thank you all for your replies
Obviously going to have to think about this a bit more