Soldato
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That is the real value after the effect of inflation when you get only 1% interest.
Any math geeks here? Compounding interest question
- Thread starter Yucca
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That is the real value after the effect of inflation when you get only 1% interest.
Now try and calculate the effective interest rate over the 30 years when he's paid in a total of £80,000 and the account balance is £121,613
Soldato
- Joined
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Now try and calculate the effective interest rate over the 30 years when he's paid in a total of £80,000 and the account balance is £121,613
When you see that number after 30 years of saving, you might start looking at bridges and buildings very differently!
Now try and calculate the effective interest rate over the 30 years when he's paid in a total of £80,000 and the account balance is £121,613
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.
Yes but your not getting just 1% interest are you. Your getting the 1k bonus and THEN 1% pa.
It's a taylor series you need
So
Year one = xy = 5 * 1.01
Year two = xy^2 + xy = 5 * 1.01^2 + 5 * 1.01
Year three = xy^3 + xy^2 + xy = 5 * 1.01^3 + 5 * 1.01^2 + 5 * 1.01
You can simplify this but i can't remember or can be bothered to work out how. You could take the 5 to the outside and do the powers in brackets to save some time
Year 3 = 5(1.01^3 + 1.01^2 + 1.01)
So
Year one = xy = 5 * 1.01
Year two = xy^2 + xy = 5 * 1.01^2 + 5 * 1.01
Year three = xy^3 + xy^2 + xy = 5 * 1.01^3 + 5 * 1.01^2 + 5 * 1.01
You can simplify this but i can't remember or can be bothered to work out how. You could take the 5 to the outside and do the powers in brackets to save some time
Year 3 = 5(1.01^3 + 1.01^2 + 1.01)
You mean, more specifically, a geometric sequence, right?
The future value of the fixed stream of payments (annuity) can be calculated using 5000 * ((1+{interest_rate})^{years_of_contribution}-1)/interest_rate. You can then accumulate the interest for a further 10 years *(1+interest)^10 to roughly get the final answer. The actual answer will likely be slightly different if timings are different, i.e the periodicity for compounding interest is different i.e monthly vs annually (as assumed in this example), but for the purposes of discussion, this should be close enough.
your lump sum will be 0, because your bank will go bust due to a massive recession and having over levergaed itself in some shaddy overseas portfolios and will have to pay all it's liquid assets to a large offshore creditor. You will be left with a strawberry flavour chuppa chupps lollypop and a small bag of Haribo star mix as compensation.........................
Probably. It was a while since i did my pure maths module and haven't used a lot of it since so never retained it. Presumed it was a taylor series looking at it but I think you're right googling what you wrote.
"Math?" Frickin "MATH!?"
Mathematics
Quite right!
I was just going to raise awareness to this heinous issue myself.
"Math?" Frickin "MATH!?"
Mathematics
Mathematics isn;t plural so an abbreviation doesn't need to retain the final s. The final s is a letter just like any other letter
It comes from the Latin 'Mathematica'. The -a suffix in Latin denotes a plural.
Also, Physics.
I don't really care, but it's fun to poke at the Americans
(just don't tell them that 'Math' came before 'Maths').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.
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.
A quick look on some compound interest calculators suggest about 117k at the end of your 20 years, and then ~130k after the final 10 years interest is added on.
NOTE: This is over-estimated, as i've entered the lump-sum deposit at the start of each year as 5k, my understanding of the scheme is that on day 1 of the new financial year, you deposit 4k, and the following month the government will add 1k to the account. So the numbers above are over-estimating it by an extra months interest each year.
On another note how are LISA's protected by the FSCS?
The OP invests £80k of his own money over 20 years, the government also pay £20k in bonus over those 20 years - this is paid directly to your account rather than being some hidden bonus you claim at the end. Infact by 15 years you would likely have exceeded the 85k FSCS protection limit. I'm not sure if you can open 2 LISA accounts?
NOTE: This is over-estimated, as i've entered the lump-sum deposit at the start of each year as 5k, my understanding of the scheme is that on day 1 of the new financial year, you deposit 4k, and the following month the government will add 1k to the account. So the numbers above are over-estimating it by an extra months interest each year.
On another note how are LISA's protected by the FSCS?
The OP invests £80k of his own money over 20 years, the government also pay £20k in bonus over those 20 years - this is paid directly to your account rather than being some hidden bonus you claim at the end. Infact by 15 years you would likely have exceeded the 85k FSCS protection limit. I'm not sure if you can open 2 LISA accounts?
Ref protection - Im 30 now so id be investing £4k for 20 years, total of £80k. The government would add 20k in bonus money. Total pot would be 100k not including interest etc that were all trying to work out lol. £85k is protected.
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.
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.