Any math geeks here? Compounding interest question

Clav said:
https://www.forestersfriendlysociety.co.uk/saving-investing/lifetime-isa/savings-calculator/

Plugged your values in here, only thing off is your 1% expected interest. Seems with the right account you should see a lot more than this.
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I wouldn't bank on such huge growth! Iv said 1% growth as thats what the LISA's pay, i.e. no investment growth at all, just the 1% interest that the LISA account gives. The same website gives a figure of £117,000 based on 2% interest rather than 1% which is a ball park figure I guess.

Everyone on here has given different figures so I don't know which one to take!
 
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Does this help?
 
Semple said:
My understanding is that the interest is also earned on the bonus amount.
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Yes, you're right. I do calculate interest on the bonus because it gets added to the total for the next year. I was thinking that the bonus would be added at the end of each year so interest isn't added for the bonus on the year it's paid in.
(Although I'm actually wrong to go that because the bonus is paid in 1-2 months after the deposit but the difference is negligible)
 
From FSCS re. deposit protection.

The Financial Services Compensation Scheme (FSCS) will protect money that is put into a LISA. For cash amounts this limit will be up to £85,000, while the protection limit for investments held in a LISA will be £50,000; these are the same limits for cash, and stocks and shares ISAs respectively.
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So not great as you'll be well over that limit according to the above.
 
Semple said:
I've shot an email over to MSE to see if they can expand on it.

The FSCS site just states the £85,000 is on "cash amounts". It's not clear whether the government bonus falls under the "cash amounts" category. Also my point to MSE is that these accounts are available to open from 18, if a person saves from 18 to 50, they'd have a total of 165k in the pot including bonus but excluding any interest. That's a huge amount to lose if the financial institution goes bust.
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It is clear. The bonus - once paid - forms part of the cash amount that’s protected by the FSCS. If you’re concerned that you’re going to save above this amount then plan ahead early and start saving with another LISA provider before it becomes an issue.

Yucca said:
Yes you are right. I worked out that the majority of my money would be covered prior to considering this option. If I were 18 then I would only save up to the 85k mark.
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Then you’d be foolish if you wanted to continue saving in the same manner. See above.
 
Yucca said:
Thats exactly what I'm trying to do! The reason why I asked the initial question is that I'm trying to work out what percentage return you are actually getting on your money over the period. Yes you get a huge 25% bonus on your annual 4k investment but then after that it only gives you 1% per year. And between the age of 50 and 60 your big pot is earning only the 1% pa, no more bonuses.

Im wondering how this set up, as a percentage return, compares to for example, just fixing 4k every year on a 3 year fixed 2.4% Atom Bank account and reinvesting in the same again every time an account matures.
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The savings account will outperform the LISA by about 40% if the interest rates stay the same and the LISA terms don't change.

It's the 10 years without bonus payments that really brings the LISA numbers down. In the first 20 years, you gain around £31k. In the last 10, it's more like £10k. In those last 10 years, the savings account would gain over £30k...
 
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dirtychinchilla said:
It's not. Different results dependent on whether the bonus gains interest on that year.
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The bonus is paid at the end of the year hence why no interest is paid on that year's bonus no?

EDIT: A quick Google suggests the amount is paid one year on, hence, I'm going to stick with my answer.
 
From doing my own research into cash LISAs, even with the 1K bonus, as a retirement/supplementary fund the return is poor. Excellent for first time buyers but if only able to access at 60 I would look elsewhere. All boils down to your attitude to risk I suppose. Returns are likely to be better investing elsewhere.
 
Touch - Seems that both you and TNGL have both come to the same conclusion so il assume your figure of £122,586 is correct.

Not sure how you have set up your excel sheet and what formulas you have used to get it working as I'm not great with excel. Do you mind adjusting the sheet to show the following please.

£4,000 Invested every year for 30 years at 2.05% - Interest paid annually at the end of each year. All interest earned remains invested for compounding interest for the full 30 years obviously.

Iv picked 2.05% as thats a tax free ISA - 3 year fixed currently on offer with Coventry Building Society.
 
satchef1 said:
The savings account will outperform the LISA by about 40% if the interest rates stay the same and the LISA terms don't change.

It's the 10 years without bonus payments that really brings the LISA numbers down. In the first 20 years, you gain around £31k. In the last 10, it's more like £10k. In those last 10 years, the savings account would gain over £30k...
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I suspected as much but couldn't do the mathematics myself to work it out hence the thread and the above request for Touch or TNGL to crunch the figures.

Don't suppose you have your excel sheet showing your above figures please?
 
Yucca said:
Touch - Seems that both you and TNGL have both come to the same conclusion so il assume your figure of £122,586 is correct.

Not sure how you have set up your excel sheet and what formulas you have used to get it working as I'm not great with excel. Do you mind adjusting the sheet to show the following please.

£4,000 Invested every year for 30 years at 2.05% - Interest paid annually at the end of each year. All interest earned remains invested for compounding interest for the full 30 years obviously.

Iv picked 2.05% as thats a tax free ISA - 3 year fixed currently on offer with Coventry Building Society.
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Here you go:
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Columns are as follows:
Balance brought forward = account total column from previous year
Paid in = amount paid in each year
Interest = (balance brought forward + amount paid in) multiplied by 0.0205
Account total = balance brought forward + amount paid in + interest
 
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