Interest rate

[appyaug]

If I put £40000 into a savings account for 6 months with a 5.1% interest rate, how much interest will I get?

£1020

5.1/100 x 40000 =2040 in a year
2040/2 = 1020 in 6 months

Although if interest is calculated daily it will be a little more

If it's 5.1% AER, the interest will work out slightly lower than £1020 because it will only be compounding for 6 months instead of a year. Probably nearer £1010.

Assuming interest is paid monthly, the monthly interest rate will be lower than 5.1/12 to take account of the fact that interest accumulates on the interest already paid.

Don’t forget tax on annual interest over £1k

Thanks all. I guess my next question is how do I go about paying the tax? It's likely to just be taxed on about £10-20 over the £1000. Seems a bit mad to complete a tax form for just that.

If you're on PAYE it should be done automatically by adjustment of your tax code. Have you maxxed out your £20k ISA allowance for the year? Not that you really need to worry about 20% tax on a tenner.

Or over £500 if a higher rate tax payer on earnings.

I use this: https://www.calculator.net/investment-calculator.html

It's in USD but that makes no difference. It's the best one/nicest format I've found and gives a really decent breakdown.

Just had a look at this. It seems to give an incorrect result if you put the AER into the Return Rate box. The actual interest rate being paid will be lower.

E.g. 40,000 at 5.1% AER should end up as 42,400, but the calculator says 42,088.37. The true interest rate is more like 4.985%.

So earnings and pension add up to about £52k. So I guess that means 40% tax on a tenner?

Yes, have maxed out ISA this year

Not quite, it means you only have a tax allowance of £500, rather than £1000.

So only the first £500 of interest is tax-free.