Halifax 5 year fixed rate ISA 5.8%

deemy2004

The Halifax fixed rate 5 year ISA at 5.8% on face value looks like a good deal, but for one item - that the interest is paid on maturity !

I.e. there is no compounding, this has the effect of reducing the % returns for years 2 onwards with the last year being an effective return of 4.63%, and an average return of 5.2% per year (were interest to be added annually).

So its not as good as it looks on face value, still 5.2% is not bad if as expected rates decline during the 2nd part of 2005 well into 2006 and maybe a little beyond.

Milarky

http://www.halifax.co.uk/savings/fixedISA.shtml

How do you work out that there is no compounding when it states: '5.80% gross/AER (for a five year term)' - am I not understanding the term 'AER' in this context?

deemy2004

Its says interest is paid on maturity, i.e. in 5 years time.

Now if it said interest is added to the account on account anniversary, or soemthing similar, then that would be different.

The AER would still be 5.8% as the interest is not being added to the account each year, (instead on maturity), thus the interest rate is always 5.8% of the starting amount, how can it be compounded when its not being added to each years total, but on maturity ?

Offcourse, in this case at least, I wish I am wrong !
As on 10k invested, that would amount to a £200 difference, between what you could get with compounding than what you will get if it is paid on maturity

Robert_Sterling_3

The Halifax five year fixed rate Mini Cash Isa pays 5.8% interest gross per annum.
In 5 years £100 becomes £132.56 and not £129 as you have assumed.

At 20% Tax:-

£100 becomes £125.46 and not £123.20

THe halifax says that the interest is paid at maturity.
This means that it is calculated annually, compounded, and actually paid to you at maturity.
i.e. You cannot take the interest for example at the end of each year.

deemy2004

hope so !

re: 32.56% instead of 29%

P.S. ISA's are tax free.

Jimmyboy_3

i work for the halifax and that doesnt seem to ba da deal, but the new reguar saver isnt too bad too, 7.07% interst on a maximum of £3000 a year savings, pay in from 25-250 a month to save, its tied up for a year, which has its good and bad points, BUT, it can get taxed on, overall, its not bad, as long as u put in the maximum and use its full potential,its worth it

james

deemy2004

Whats the deal then ?

isasmurf

THe halifax says that the interest is paid at maturity.
This means that it is calculated annually, compounded, and actually paid to you at maturity.
i.e.  You cannot take the interest for example at the end of each year.

When I hit the reply button I was going to disagree with this and agree with the original poster, as the Halifax website clearly says interest is paid on maturity. But then the gross interest rate and AER are the same, and the only way that can happen is if interest is paid annually. Without the T&C, which aren't on the website, it is difficult to say.

I then looked at the account entry in moneysupemarket and that says, interest is compunded annually but paid on maturity.

So it seems, as much as it hurts me to say this, Robert is right! :-/ :P

Robert_Sterling_3

;D ;D ;D

deemy2004

1990

10 more robert ! ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D

Robert_Sterling_3

The bird has flown.