Maths Help Please 11 December 2022 at 3:26PM in ISAs & tax-free savings 4 replies 272 views

Shylock_249

I have a fixed rate ISA paying 1.6% due to mature on 5 July 2023 – I opened it on 5 July 2022.

The same Building Society has a 1 yr fixed rate ISA paying 3.45%

To move the money from one to another (would take 10 or so days) incurs a penalty of 90 days loss interest. My estimate = £247.xx.

The capital sum of the ISA is £62,682.12 (NOT including any interest)

The 3.45% ISA would run from the day it was funded ie, 1 yr, NOT 5 July 2023.

Could someone please give me the workings to show if I would be better off switching and show how they arrived at the figure.

I’m thinking if would be along the lines of, the interest earned from say 20 Dec 22 until 5 July 23 at 1.6% against interest earned at 3.45% minus £247.xx, but I’m just a country boy!

I’d like to know the workings as I have other ISAs from other Banks/BS with differing rates which I might try and switch.

Thanks in advance

 PS: I don’t want to move from this BS if I can help it.

Reed_Richards

I broadly agree with your calculations.  It would take 42 days at 3.45% to recoup the interest penalty.  So after 84 days you will have drawn level with where you would have been with the old ISA.  Therefore you will be better off unless it turns out that by 5 July 23 interest rates gave risen even higher and you have the chance to invest at an interest rate significantly more than 3.45%.  So unless you have a crystal ball to predict the future it's impossible to be sure what the best thing to do is.  

refluxer

Here's how I would work it out, using this simple online interest calculator (all calculations rounded off for simplicity)...

£62,682 in a 1 year ISA @ 1.6% will be worth £63,685 when it matures on 05/07/23

If you wanted to transfer that today, it would be worth £63,119 minus the 90 day penalty of £247 = £62,872

£62,872 transferred into a 1 year ISA today @ 3.45% will be worth £64,102 on 05/07/23.

So... I think you would be £417 better off on that particular date if you were to do the transfer that you mention today, rather than letting the existing ISA mature.

I would recommend having a go with the calculator yourself though and checking these figures, before making any decisions. (Note that you have to tweak the dates slightly, as the calculator uses dates inclusively)

refluxer

Bear in mind that there is a Bank of England meeting this Thursday, which could obviously have an effect on interest rates. 

Shylock_249

Thanks everyone for your helpful replies, especially Refluxer for giving the link to an online intrest calculator.  I wasn't aware such a tool existed.

Thanks again