When does interest accrue in a cash ISA?

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steveinkent
steveinkent Posts: 11 Forumite
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in Savings & investments
Hi

Forgive the somewhat naive question, but if I put an additional £8000 into my cash ISA before year end now, will that still accrue interest? I'm not clear on whether funds accrue interest over time, or if it's the total amount in the ISA at the end of the tax year...?

Thanks
S

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  • MallyGirl
    MallyGirl Posts: 6,623 Senior Ambassador
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    A cash ISA is just a savings account. If you put £8k in 1 day before the end of the tax year, and interest is added yearly at end of tax year, then you will earn one day's worth of interest.
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  • Tom99
    Tom99 Posts: 5,371 Forumite
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    [FONT=Verdana, sans-serif]The amount you deposit will accrue interest on a daily basis starting the day after your deposit but interest is only credited to the account usually once a month or yearly.

    [/FONT] [FONT=Verdana, sans-serif]Both monthly or yearly interest can be credited either on the anniversary of the account opening or on a date fixed by the bank.

    [/FONT] [FONT=Verdana, sans-serif]You can sometimes choose if you want interest credited monthly or yearly but you normally cannot choose the date in the month or year.[/FONT]
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    The frequency of interest accrual (ie growth) is one of the great maths problems. It's better to have the interest credited as often as possible.....so x/12% every month is better than x% every year. Out of this (1+1/n)^n as n increases drops e ie 2.7182..............and this governs natural growth and decay so you find it in things like the rate of plant growth and radioactive decay too.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • RG2015
    RG2015 Posts: 5,904 Forumite
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    bostonerimus wrote: »
    The frequency of interest accrual (ie growth) is one of the great maths problems. It's better to have the interest credited as often as possible.....so x/12% every month is better than x% every year. Out of this (1+1/n)^n as n increases drops e ie 2.7182..............and this governs natural growth and decay so you find it in things like the rate of plant growth and radioactive decay too.
    Sounds a bit like Zeno's tortoise paradox. I never understood that either. :)

    However, I do know that rubbish % of anything close to my capital tends towards rubbish yield.
  • eskbanker
    eskbanker Posts: 31,038 Forumite
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    bostonerimus wrote: »
    The frequency of interest accrual (ie growth) is one of the great maths problems. It's better to have the interest credited as often as possible.....so x/12% every month is better than x% every year.
    Mathematically that's true but in the context of real-world interest payments, providers will typically be working back from an AER figure and using a lower gross percentage for any frequency more regular than annually, so as to negate the compounding effect you refer to.

    Hence the Nationwide FlexDirect for example, with a 5% AER - as it credits interest monthly, those payments are based on a gross rate of 4.89%, which will compound up to the full 5% over the year (whereas if they offered annual interest it would be at the full 5%).

    Didn't follow the rest of your post about dropping Es, I don't think MSE would condone such behaviour.... ;)
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    eskbanker wrote: »
    Mathematically that's true but in the context of real-world interest payments, providers will typically be working back from an AER figure and using a lower gross percentage for any frequency more regular than annually, so as to negate the compounding effect you refer to.

    Good point, in reality I'm sure the banks will adjust the numbers to their benefit.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    eskbanker wrote: »
    Didn't follow the rest of your post about dropping Es, I don't think MSE would condone such behaviour.... ;)

    (1+1/n)^n as n tends to infinity approaches the value 2.781......(it goes on forever) and this is called "e" or Euler's number.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • Zero_Sum
    Zero_Sum Posts: 1,567 Forumite
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    bostonerimus wrote: »
    The frequency of interest accrual (ie growth) is one of the great maths problems. It's better to have the interest credited as often as possible.....so x/12% every month is better than x% every year. Out of this (1+1/n)^n as n increases drops e ie 2.7182..............and this governs natural growth and decay so you find it in things like the rate of plant growth and radioactive decay too.


    Monthly rates are always a bit lower to take this into account.
  • 2010
    2010 Posts: 5,360 Forumite
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    Interest is added on the date it says on the T&C.

    An example of a Virgin one year fix it`s the 5th Aug.
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