Any math geeks here? Compounding interest question

touch · 20 Jan 2019 at 19:54

I can do the maths to work out the interest generated but you'll need to find someone more qualified than me to tell you where to invest your money.

Yucca · 21 Jan 2019 at 15:39

I am SHOCKED that the difference over the 30 years is so HUGE. Plus in the ISA you get the added advantage of withdrawing the money every 3 years on your 'fix' anniversary if you want it. Whereas in the LISA you cant till your 60.

Why would anyone want to use a LISA for long term savings and how have the gov managed to get away with advertising this 'incentive' when in reality its worse than a normal savings account?!!!

touch · 21 Jan 2019 at 16:40

Yucca said:
I am SHOCKED that the difference over the 30 years is so HUGE.

Are you remembering that the first time you asked for 20 years worth of £4000 payments and when adjusted you asked for 30 years worth of payments?
There's almost no difference between them without the additional 10 years of payments.

Yucca · 21 Jan 2019 at 17:21

touch said:
Are you remembering that the first time you asked for 20 years worth of £4000 payments and when adjusted you asked for 30 years worth of payments?
There's almost no difference between them without the additional 10 years of payments.

Ahhh yes I had forgotten that!!! So if the objective is long term savings then the two perform about the same right?!

Is there a way to use the two in conjunction to maximise returns?! What about investing in the LISA 4k per year only for the years that give the bonus and then from then on moving to investing in a normal bank account?!

Yucca · 21 Jan 2019 at 17:22

Could you please do the figures on the following so that we can see a correct comparison.

4k per year for the first 20 years only. Then no extra investment between year 20 and 30. What do you end up with at year 30?

touch · 21 Jan 2019 at 21:37

Yucca said:
Could you please do the figures on the following so that we can see a correct comparison.

4k per year for the first 20 years only. Then no extra investment between year 20 and 30. What do you end up with at year 30?

I'm on my phone at the moment so can't post the spreadsheet but i did try doing this when i was writing my last post and the end result was somewhere around 122,000. I remember it only being a few hundred less than the LISA option.

dirtychinchilla · 23 Jan 2019 at 09:08

I think it's £122,102.90

touch · 23 Jan 2019 at 09:34

dirtychinchilla said:
I think it's £122,102.90

Yep, that's what I got too.

Yucca · 23 Jan 2019 at 18:55

Thank you all for your help.

Ok so im still a little confused about how to get the maximum return on savings. I understand that investing 4k per year over 30 years would mean I am worse off than investing the same 4k per year over 30 years in a savings account (fixed isa) due to the fact that in the last 10 years there is no big bonus and the 1% interest is much lower than what a savings account would pay.

But.... What if I invest my 4k per year for as many years as I get the big bonus only (ie the first 20 years) and then for the remaining 10 years I invest my annual 4k in the savings account at the higher rate (fixed isa)? Then would I get the best of both worlds. Would I end up with more at the end?!

Think I need an excel tutorial from on of you lot!

dirtychinchilla · 24 Jan 2019 at 07:58

No offence, but this is very easy Excel. You just need to use the formula "=(previous year's value) * (1+ (interest rate/100))", so for the first line of the above, =4000*(1+0.0205).

Add £4,000 on each line. Rinse and repeat for 20 years.