ISA interest question - compound interest.

If I deposit 5340 lump sum in a 2 year fixed rate ISA at 4%, can I add 5340 lump sum again next tax year and get the same rate and is the interest on year one added? i.e. is the following calculation correct;

Year 1: 5340 + (5340 x 0.04) = 5340 + 213.60 = 5553.60

Year 2: (5553.60 + 5340) + (10893.60 x 0.04) = 10893.60 + 435.74 = 11329.34

Asked by Andy Nash

3 Answers

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A
Answered by Andy Nash
Sorry, I've asked this question twice by accident. | 03.20.12 @ 20:00
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$commenter.renderDisplayableName() — {comment} | 08.19.17 @ 14:55
Answered by Richard Salter, IFA in Trowbridge, WILTSHIRE
Noted Andy. My earlier answer addresses each of these points here - you may find that you are offered better - or worse - interest rates at the time of any second deposit.
However there are often deals around this time of year by banks and other deposit takers to capture more of your cash. They will sometimes say "give us the full £5,340 for this tax year's maximum cash ISA allowance AND up to a further £5,640 for the coming tax year's (increased) maximum cash ISA allowance" - so a total of up to £10,980 now and we will ensure that it is used to open two successive tax years cash ISAs at the same interest rate deal. They do this to capture more of your cash , keep you away from competitors and becasue they can be confident of maintaining the same interest rate and rough fixed rate term (every fixed rate anniversary will be different depending when you placed your first deposit - with a few exceptions) over a matter of a week or more covering the end of tax year on 5th April and start of the new tax year on 6th April. | 03.21.12 @ 10:15
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$commenter.renderDisplayableName() — {comment} | 08.19.17 @ 14:55
A
Answered by Andy Nash
Thanks Richard (for both answers), I haven't had an ISA before so I'm still trying to grasp some of the language. I just have another couple of questions. If I were to open a fixed rate two year cash ISA, can I open another ISA next year with another bank while I wait for my first to mature? Is there a limit to how many ISAs I can hold. I know that I can only open one cash ISA per year, but in 10 years could I potentially have 10 ISAs?

Provided I can open another ISA in year two, once the two years are up I will have two years worth of savings. Can I put the whole lot into another ISA and still add year 3's allowance? | 03.23.12 @ 13:49
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$commenter.renderDisplayableName() — {comment} | 08.19.17 @ 14:55
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