Compound Interest on my ISA

wymondham

Hi All
I'm trying to calculate how much I can save in my ISA over X amount of years and would like to do this including the Interest (compounding??!). Can anyone supply the formula I need to use? My ISA is an Egg Cash ISA.

many thanks!!

Lokolo

http://www.1728.com/compint.htm

try fiddling around with that

wymondham

many thanks, just found one by martin:

http://www.moneysavingexpert.com/savings/best-cash-isa#calculator

sorry, i was sure i searched first!!!

it still thinks the max is £3000 though..!

wymondham

probably does not impact much, but Egg say Interest is added daily rather than monthly, would this have much/any impact on results?

Lokolo

Yes. Extremely annoyance. I have an Egg calculator thing lol but I can't figure out how to have an attachment on here.

Aegis

wymondham wrote: »

probably does not impact much, but Egg say Interest is added daily rather than monthly, would this have much/any impact on results?

Are you sure about that? It's more usual to calculate interest daily and add it monthly at best. Compounded daily interest on an ISA could get very expensive for them!

Lokolo

I found they did that Aegis, I was suprised and when I mentioned it on here no-one believed me! Well I used to work it out on my regular savings account anyway, I just added the interest in pence rounded up to it everyday and it worked out my interest.

But I could be wrong Hence why I am waiting for my next interest payment! argh.

Aegis

Hmm, I'm checking their terms and conditions... They are actually being quite sneaky, I reckon. They're paying a gross interest rate of 6.05% p/a and calling it compounded daily when the gross equals the AER. this is flat out wrong, as if their gross rate were 6.05 and the interest was paid and compounded daily, the AER would be:

[1+(.0605/365)]^365 = 6.24% AER

In short, it looks like they're talking crap. If the gross is the same as the AER, you're not getting compounded daily interest, or at least not using the usual terminology that applies to all accounts in the finance world that I've seen to date.

What they might feasibly be doing is paying interest daily at a lower rate than the 6.5%/365 so that when you leave the account they don't have to pay you as much as usual...

Really, it's very fishy how they've worded this!

Edit to add: If they're paying compound daily interest, their gross rate is actually 5.87% pa.

Lokolo

Its a company named after something that comes out of a chicken... do you really expect it to be sensible? lol......

Aegis

Well, when you put it like that...

In all seriousness, this is quite possibly a very real breach of the "clear and concise" requirement of the FSA for Treating Customers Fairly. On the one hand they state quite clearly that compounding happens on the page, but at the same time they quite a gross rate which is the same as the AER, which means that no compounding is actually occurring.

Can anyone with a little more experience tell me if I've completely misinterpreted the writing on their page?

PBA

Depends on your definition of the word compound, something not even dictionaries seem to agree on. It seems it can also mean calculate, which seems to be the meaning egg are using it for, as they seem to be calculating the interest daily and paying it annually.