Maths / Interest question

retiredbanker1

SnowMan said:

If you can give us the precise dates of the initial deposit of £45,000, the interest date in August, the exact interest payment in August and the exact maturity date it should be possible to check the interest payable. 

If the £45,000 was paid in on 30th May and the interest paid on 1st August and they used 1/365 per day interest in leap years then the August interest would be about £358.06. 

And if the account matures next Friday then that would give total interest of about £2,053. 

And so it would be down to the account running for slightly less than a year.

Money in 2024 went in on 24th May £45k Interest of £358 paid on 5th Aug.
Total interest as at May 24 2025 (future dated by them) £2053

masonic

retiredbanker1 said:

SnowMan said:

If you can give us the precise dates of the initial deposit of £45,000, the interest date in August, the exact interest payment in August and the exact maturity date it should be possible to check the interest payable. 

If the £45,000 was paid in on 30th May and the interest paid on 1st August and they used 1/365 per day interest in leap years then the August interest would be about £358.06. 

And if the account matures next Friday then that would give total interest of about £2,053. 

And so it would be down to the account running for slightly less than a year.

Money in 2024 went in on 24th May £45k Interest of £358 paid on 5th Aug.
Total interest as at May 24 2025 (future dated by them) £2053

How did the £45k go in on 24th May? Because 73 days at 4.61% AER/gross would come to £414.91, but 63 days at 4.61% would come to £358.06.

From 5th Aug, interest to 23rd May 2025 (291 days) would bring the final balance to £47,025, but this is less than the final figure you quoted. An extra 5 days would make it £47,053.

This suggests that interest was payable on the money from the third working day after the money was credited (29th May, 5 calendar days allowing for bank holiday), consistent with a cheque clearing cycle, and the interest paid on 5th August was actually to 31st July inclusive, but credited several days later. Hence the "extra" 5 days in the second interest payment. So 5 days lost at the start before interest was payable (and a delay of 5 days to receive the interim interest which muddied the waters a little).

retiredbanker1

Thank you the monies were already in a fixed rate ISA - same sort code same account number as previous year. All I did on maturity last year was withdraw the interest and a small amount of capital to leave balance at £45k.  So the amount was cleared funds from day 1.
I wonder if they had a backlog of work and it took them so many days to put correct coding
On the account to make it the rate of 4.61?

masonic

retiredbanker1 said:

Thank you the monies were already in a fixed rate ISA - same sort code same account number as previous year. All I did on maturity last year was withdraw the interest and a small amount of capital to leave balance at £45k.  So the amount was cleared funds from day 1.
I wonder if they had a backlog of work and it took them so many days to put correct coding
On the account to make it the rate of 4.61?

The calculations suggest an interest void period of 2 working days. That's no interest earned at all. If you have a statement showing a credit of £45k to the renewed account dated 24th May, it would be very unusual for an internal electronic funds transfer not to earn interest from the first day. Even stranger if the account was treated as being the same and a zero rate of interest was applied at the end of the previous fixed term for those first few days.

SnowMan

Running it through my spreadsheet suggests to me that the interest credited on 5th August was actually interest accrued up to the end of July. On that basis your actual balancing interest of £1,695 to maturity compares with the £1,695 I estimate.

So the issue seems to be the period from 24th May to 1st August where you should have got about £392 in interest but were paid £358. It's about 6 days of lost interest (63 days instead of 69 days).  So they seem to have treated your initial deposit as having been made on 30th May not 24th May. You can see below where using 30th May gives an estimate of £358 vs the actual £358 paid.

This assumes that the interest paid on 1st August itself attracts interest as that is what gives agreement for the period from 1st August 2024 to maturity (the interest on interest is about £14)

SnowMan

retiredbanker1 said:

Thank you the monies were already in a fixed rate ISA - same sort code same account number as previous year. All I did on maturity last year was withdraw the interest and a small amount of capital to leave balance at £45k.  So the amount was cleared funds from day 1.
I wonder if they had a backlog of work and it took them so many days to put correct coding
On the account to make it the rate of 4.61?

A few years ago I had a Virgin fixed rate account mature. They gave me some maturity options online which I could select, the default was a low rate paying easy access account. I had already opened a different Virgin fixed rate account for the maturity proceeds to be reinvested which wasn't on the list. I rang them up before maturity and asked them to reinvest the maturity proceeds in my new fixed rate account instead; they told me to send them a secure message which I did before the maturity date. But they took a number of days after the maturity date to set up the new fixed rate account and in the meantime I was only given interest at the low easy access account rate. I spotted this and they agreed to credit me with the difference between the new fixed rate account and the default account for the set up period. 

I am wondering if something similar has happened to you here. 

badger09

retiredbanker1 said:

Thank you for all of your replies - I was expecting £2074.50
I have a legitimate reason for asking the question my ISA is due to mature next week and they have calculated the closing interest to be £2053.08

Yes I am a retired banker! I just wanted to check that my old style maths had not been replaced by something digital LOL

In fact I was expecting the interest to be even higher because they pay annual interest in August - and I deposited the money in May 2024. So I got £358 in August which I assume would be compounded until maturity this month.

I can only think that there is some kind of hidden charge when I withdraw the interest and some capital when this is taken out on maturity; rest is then reinvested for a further 12 months (4.1% this year).
I am aware that my provider charges 60 days interest on withdrawals but should any charge actually show as a debit on my ISA account?

The only conclusion I have is that they deduct any ''charges'' from following year's interest but not show this at all on the account. I do not think I should be paying anything to withdraw on maturity.

Any thoughts please? I won't name them for now.

My thoughts are …. that as in many aspects of life, there was more to this than meets the eye.
(From a retired Snr Tax Inspector😉)

retiredbanker1

I have sent them a message - let's see what they have to say.

I will update when I have news.

retiredbanker1

Quick update - they have admitted their error in charging me 60 days interest upon maturity when I withdrew some capital and interest.
Got a few more questions for them and we will see what we end up with.

retiredbanker1

Ok so far I have received more than £60 interest underpaid by them.
It is now with a complaint handler as it looks like it was not a one off! 

It looks like previous year's withdrawals (at maturity) have been treated in the same way.

Watch this space.