I’ve just had a run in with one UK ISA supplier – however most of them are pretty poor on communication – the initial dispute was on interest rates – they said I’d signed up for 3.75% 3 year deal and I had to argue strongly that the rate agreed in their office was 4.25% ( this was completed on a verbal instruction basis – as a roll over from an existing ISA and I received no actual paperwork to take away) .
Rule – ask for some paperwork (even handwritten) and keep this well organised, as after 3 years you will have probably forgotten what the initial rates were and they won’t be willing, or even able, to check back that far.
This got me thinking – who checks they are paying you the correct interest amount based on the money invested? ….. and how best to check their calculations.
I have listed 2 methods – one to put into a spreadsheet (best route for long-term planning purposes) and the second is from a link in the Useful Links page – fine for a quick check (see link below for access to this page).
The set of Excel formulas provided didn’t work for the ISA but this formula does:
final value = PV x (1+R/M)^N (as shown below)
| Formula | =PV x (1+R/M)^N | |||||||||||||
| Test | ||||||||||||||
| PV £ | 5,000.00 | PV = Present Value – how much you put in the bank | ||||||||||||
| Rate | 0.0425 | R = Interest Rate – the annual rate the bank will pay you (this represents 4.25%) | ||||||||||||
| Period updated | 1 | M = Number of compounding periods – if the bank compounds the interest annually then this number is 1 (ISA normal) | ||||||||||||
| Number of years | 3 | N = number of investment periods – the compounding periods your money is invested for | ||||||||||||
| Our formula in Excel would read: | ||||||||||||||
| Final value £ | 5,664.98 | |||||||||||||
| & interest for period = | 664.98 | |||||||||||||
| To get the ^ symbol in Excel – it’s on the key above 6 | ||||||||||||||
If you don’t like the above method, then choose the On-line Calculator option in the Useful Links tab and select the compound interest option – marked ‘business’ and enter your data.
If you want to put the full formula into a spreadsheet (for on-going ISA purchases over time), I suggest you initially put in the above data into the spreadsheet formula to confirm you got the formula input correct! – it’s always good practice to check with a known answer first.
If you have friends or family who’d benefit from being able to check the interest payments received or to help forecasting future income streams, please pass the link on.
I may do an article covering fixed and capital growth options – and explain issues like AER properly – shown on most ISA products – would you be interested?
