Maths assistance requested. 27 September 2022 at 5:50PM in ISAs & tax-free savings 4 replies 211 views

Rusty190

Would someone who can add up and subtract better than me, calculate this one for me please?
As per your old Maths teacher's instructions, please show your working out (so I'll hopefully learn for next time).

I currently have a 2 year fixed rate cash ISA in an account opened 24th April 2022 paying 1.6%.
Balance, give or take a couple of £'s, £38,000.0.

If I move before it matures, exit fee is loss of 180 days interest.

What fixed rate of interest do I need from another provider, to better this plus compensate for the 180 days loss of interest?

Many thanks.

jak22

The loss is around half a year's interest 0.8% and current 1 year ISA fixes are already above that much over your 2 year rate

eskbanker

Depends when you jumped ship and over what period you wanted to break even or better.

Over the two years you'd earn 3.2% (ignoring compounding) - if you pulled out after 180 days (in about three weeks time), you'd effectively start again with your original balance and would need to earn that 3.2% in 1.5 years, so that would be an annual rate of about 2.13%.

hara____

Might be helpful to think of when you'd breakeven under the penalty.

If you switch now, you essentially lose the last 6 months of interest at 1.6%

But if your new account has a rate 1.6% higher you'd recover that penalty by next April. And all the extra interest after next April is what you'd gain by switching.

masonic

Rusty190 said:

I currently have a 2 year fixed rate cash ISA in an account opened 24th April 2022 paying 1.6%.
Balance, give or take a couple of £'s, £38,000.0.

If I move before it matures, exit fee is loss of 180 days interest.

So it will cost you £38000 x 1.6/100 x 180/365 = £300 to break the fix.

Rusty190 said:
What fixed rate of interest do I need from another provider, to better this plus compensate for the 180 days loss of interest?

Over the remaining ~18 months, you'd need to earn more than £300. That's £200 extra interest per year, or an extra 200/38000 = 0.52% above your current rate.

You should also consider what you might do if, as predicted, the base rate rises from 2.25% to 4.75% over the next few months. If you take out another fix now, and then break it again in 6 months time with a similar 180 day penalty, that could be a whole year without interest as penance for fixing while rates are rapidly rising.