Halifax Help to Buy ISA - You may receive less interest than you expected

EpicFishFingers

Hi, so I opened a HTB ISA with Halifax last year, back when the interest was 4%. It's since been cut to 3.5% gross interest, and that interest was paid in last week (1 year after I opened the account)

So I aid in essentially the maximum amount I could (12p off, lol), so I stuck £1000 in for December 2015, then an additional £200 in for December 2015 as well when I realised I could do this, but messed up the transaction when paying it in and anaged to put in £199.88, so I've had a non-round figure to look at for the whole year when viewing my statements

Anyway as predicted, I now have £3399.88 in it for which interest would be lumped on top of.

I thought my received interest would be, essentially, 3399.88 * 0.035 = £119.00.
I checked my statement today though and the interest received was closer to £90, and was paid on the anniversary of the day i opened the account.

I phoned Halifax about this and the bloke on the phone agreed with my calculation then went on hold for a while.
He then told me that the interest is calculated on a daily basis, over the entire year, based on the money I have in there on any given day. This amount is then considered (probably averaged or something) at the end of the year, then the interest is paid on that background amount. He couldn't tell me the value of that amount.

So essentially the only way I would have got the expected £119 interest, is if I paid in the full £3400 on day 1 of opening the account.
But this is not possible: Halifax only let you pay £1000 in then £200 a month. Aside from being a few days late to pay in the original £1000, and then a week late for the £200 a month start date, ~£90 is the most interest you'll get if you've paid in the absolute maximum.

So essentially if you thought you'd get interest paid on the amount in your account on the day of maturity, you're wrong.
Now I see why Halifax limited the deposits the way they did.

I feel pretty disappointed with this result. Every other account I've had has paid interest on the amount in my account on the day of maturity, whereas Halifax have deliberately obfuscated their method to make it hard for me to check the interest rate being paid is correct.

I'd understand them using this method to stop you paying in £10k right before the maturity date and cashing in on that value, but they set the limits themselves to prevent this by only allowing £200 a month to be paid in.

So if you were expecting 3.5% of £3400 to be paid in, in that line of thinking you'll actually only receive about 2.6%.

I'm sure Martin mentioned this, but I doubt I'm the only one who missed it

Edit: yes alright I was stupid, about half an hour after posting this I realised "yeah of course that's the way it should work or they'll pay me a full year's interest on £200 that's been in there less than a month", and as you can see in the post I was already coming to that realisation while writing it...

To the people who said it's been asked before, I did search the forum and turned up nothing, but to be fair I think I included "halifax" in my search. No I don't really care if you now do the same search and get loads of similar results, and no I don't remember the exact search terms I used, you'll just have to take my word for it that I did have a look around, on and off this site.

With my other accounts (or the one I used for comparison) it did have a static amount for the past few years so did truly get the interest as I've described it, and yes I understand the difference.
I take it the formula for calculating the interest is simply something like the following (if we assume the interest was always 3.5% for the sake of argument:

([day 1 balance*0.035]+[day 2 balance*0.035]+...+[day 365 balance *0.035])/365?

Or is there more to it?

eskbanker

You won't be the first or the last to completely misunderstand how interest works on regular saver products as there have been plenty of other threads about this - as Halifax correctly point out, you'll only earn interest on whatever is in your account on any given day, why would they pay you interest on money you haven't paid in? Why do you think you should earn a full year's worth of interest on the £200 you paid in this month or last month for example?

The monthly limit of £200 isn't something Halifax have dreamed up to limit their interest payments, it's a limit of the HTB ISA scheme, as imposed by the government.

As for "Every other account I've had has paid interest on the amount in my account on the day of maturity", this just isn't true unless you've had a static balance for the entire year, go back and check the figures!

bigadaj

Why do people expect to be paid interest on money that isn't in the account?

I'm not sure if basic maths teaching needs improving or it is just the over prevalent victim culture?

Kim_13

Halifax did not limit the deposits. This was part of the product which the government decided the features of.

pinkdalek

EpicFishFingers wrote: »

Hi, so I opened a HTB ISA with
Halifax only let you pay £1000 in then £200 a month. Aside from being a few days late to pay in the original £1000, and then a week late for the £200 a month start date, ~£90 is the most interest you'll get if you've paid in the absolute maximum.

So essentially if you thought you'd get interest paid on the amount in your account on the day of maturity, you're wrong.
Now I see why Halifax limited the deposits the way they did.

I feel pretty disappointed with this result. it

No the government only permit £1000 within 21 days of opening and £200 max a month. Halifax did not limit the deposits.
Halifax are not incorrect with their interest calculations, you have misunderstood how the interest is calculated on an account that receives a regular amount each month.

Imagine it was a loan and the balance is the reverse, you would not pay the same amount of interest in the final year of the loan as you would have done in the first year of the loan would you.

Interest is calculated daily.

Ashen

You also seemed to think that the interest rate drop went hand-in-hand with the interest calculation at the end ("3399.88 * 0.035"). Using that logic, if they'd have dropped it to 0%, your own calculation would have given you zero interest for the year.

You got 4% daily on money that was in there (until the interest rate change), and 3.5% daily on money that was in there after the change.

You say you're disappointed - however, actually, Halifax's HTB ISA has been by far the best out there, and still is.

PeacefulWaters

You may have received less interest than you expected.

But that's because your expectations were ridiculous.

Section 3 on the Halifax web site sets expectations sensibly:
https://www.halifax.co.uk/isas/cash-isas/help-to-buy-isa/

tempus_fugit

PeacefulWaters wrote: »

You may have received less interest than you expected.

But that's because your expectations were ridiculous.

But very true.

Apodemus

bigadaj wrote: »

Why do people expect to be paid interest on money that isn't in the account?

I'm not sure if basic maths teaching needs improving or it is just the over prevalent victim culture?

While I agree with you wholeheartedly, to be fair to the OP, when I had a Halifax mortgage, they charged the full year's interest on the year's opening balance, taking no account of the reducing balance as the year proceeded. Perhaps he, unreasonably, expected the rules to be applied the same way to both parties! :rotfl:

bigadaj

Apodemus wrote: »

While I agree with you wholeheartedly, to be fair to the OP, when I had a Halifax mortgage, they charged the full year's interest on the year's opening balance, taking no account of the reducing balance as the year proceeded. Perhaps he, unreasonably, expected the rules to be applied the same way to both parties! :rotfl:

For many years interest was charged by most banks and building societies on the opening balance for the year, I think pre computer days they claimed it was too difficult to calculate on a reducing balance!

Some charged monthly and most changed to this and more recently it's become daily but as you say at least it's become a more level playing field.

pinkdalek

Apodemus wrote: »

While I agree with you wholeheartedly, to be fair to the OP, when I had a Halifax mortgage, they charged the full year's interest on the year's opening balance, taking no account of the reducing balance as the year proceeded. Perhaps he, unreasonably, expected the rules to be applied the same way to both parties! :rotfl:

True before the great "Daily Interest" was introduced.
But by the same arguement if you wanted to pay a part payment (lump sum) off it you were better to keep it in your savings for most of the year, earn some interest and then pay it off your mortgage before the mortgage provider calculated your next year's interest. Otherwise all it did was sit their until that banks financial year doing nothing!