How is Your interest calculated?
Fixed Term Deposit Account
For the Fixed Term Deposit, you will receive 6.25% gross/AER on half of your capital.
The table below shows the potential return from the gross and net interest rates on an investment of £5,000 - half of a total investment of £10,000.
Example
| Original Investment | Gross/AER Interest** | Total Gross Return | Net Interest** | Total Net Return*** |
|---|---|---|---|---|
| £5,000 | 6.25% | £5,312.50 | 5.00% | £5,250 |
Guaranteed Savings Bond (Issue 27) account
For the Guaranteed Savings Bond (Issue 27) the interest paid on the other half of your capital is linked to the performance of the FTSE 100 Index and is measured as follows:
Step 1.We record the start level of the Index at the close of business on the 11th July 2008.
Step 2. We take the value of the index at close of business on each business day between 11th July 2012 and 11th July 2013.
Step 3. We then calculate the average of the index over that period† (this is the average year 5 level). This is called Final Year Averaging.
Step 4. We deduct the start level of the Index from the average year 5 level† (calculated in step 3), and divide this figure by the start level of the index. We then multiply this by 100 to give the average percentage change over the five-year period.
Step 5. We multiply the average percentage by 80% to determine the gross interest payable at the end of the five-year period. This method of calculation is in section 7 of the Terms and Conditions.
Please note: No interest will be paid during the life of the Bond.
In order to iron out any last minute fluctuations in the market, index levels are averaged over the final year of the term (explained in step 3). This means that even if there were to be a stock market crash just before maturity in 2013, the interest paid is unlikely to be significantly affected. This will also have the effect of averaging out any rises in the final year and, in this instance, is likely to reduce the overall interest.
The table below shows examples of how much your potential interest could be for several different levels of increase or decrease over the 5-year period on an investment of £5,000, half of an original investment of £10,000. Examples given are for illustrative purposes only.
| Original Investment | Average increase in index | Gross Interest as 80% of any average rise in the index** | Net Interest** | Total GSB Return*** |
|---|---|---|---|---|
| £5,000 | 50% | 40% | 32% | £6,600 |
| £5,000 | 25% | 20% | 16% | £5,800 |
| £5,000 | 0% | 0% | 0% | £5,000 |
| £5,000 | -25% | 0% | 0% | £5,000 |
** Gross interest available to eligible customers who complete appropriate HM Revenue Customs Certificate.
For other cases, we will pay interest net of lower tax rate (currently 20%).
*** Shown here as original investment + Net Interest Gross is the contractual rate of interest payable before the deduction of income tax at the rate specified by law.
AER illustrates what the interest rate would be if the interest is paid and compounded once each year.
