Interest paid out of account and not compounded

akh43

Looking for a new ISA to transfer to and on checking UBL seems to be the best rate, but noticed the interest aspect and not fully sure what this means.  The interest works out around £100 more than the next on the list.  There are 4 options of when you receive the interest, monthly, quarterly, annually or on maturity.  If I choose on maturity, would that mean the interest would transfer out at the end of the term to my next ISA?  If not, where are you supposed to transfer the interest too and would it lose its ISA status?  I have already done a fixed rate ISA this year so couldn't transfer to that.

Thanks

kuratowski

Yes, if you pick maturity, then the entire interest will be added onto the ISA at the end of the term.  But the interest isn't compounded so it's just number of years times the interest rate.  E.g. for £10000 earning 0.96% for 3 years, you will get 3 x 0.0096 x 10000 = £288.  Whereas, if the interest had been paid and credited annually, with compounding you would have received £290.77 instead.

If you were to pick any option apart from maturity, then the interest would be paid out to a current account (well, an account with a sort code and account number at least).  You would nominate one at the time of opening, and prove that you own it, by sending a bank statement.  This means the interest would be outside the ISA wrapper, so if you paid it into a new ISA it would use up some of that year's ISA allowance.

Eco_Miser

kuratowski said:

Yes, if you pick maturity, then the entire interest will be added onto the ISA at the end of the term.  But the interest isn't compounded so it's just number of years times the interest rate.  E.g. for £10000 earning 0.96% for 3 years, you will get 3 x 0.0096 x 10000 = £288.  Whereas, if the interest had been paid and credited annually, with compounding you would have received £290.77 instead.

Perfectly correct.

However it's worth noting that if the bank were offering compounded interest, they would probably only be offering 0.951%, resulting in £288 interest again.

akh43

Thanks for the answers, but still a bit confused, I have been looking at this table https://saversfriend.co.uk/charts/3-year-fixed-isa-savings-accounts# which gives figures for the amount I am transferring (£21k) of £604.71 for the first 3 interest options, but £611.10 for the OM option.  Are their figures wrong?  Next highest on their table is shawbrook at £509.86 for the same amout which is quite a difference.

kuratowski

Saversfriend's figures do appear to be wrong.  If you look at UBL's own website, there is a table illustrating the interest for a £2000 deposit, and this works out to be the simple 3 x rate x amount that I quoted above.

akh43

Thanks for confirming saversfriend's figures are wrong, I will probably go for the yearly interest option instead and it transfer to my current account if interest is the same as no point letting them have the interest for 3 years.