Stay with A & L or Move To Cahoot !!

You need to work out how many days at the higher rate it takes to recoup the days of lost interest at the lower rate:

D = op * d / (np - op)

where:
D days to recoup
op old percentage, i.e. interest in old account
np new percentage, i.e. interest in new account
d number of days without interest


Example:
money is in A&L account @ 5%
Cahoot pays 5.1%
assume transfer from A&L takes 3 days of lost interest:

D = 5 * 3 / (5.1 - 5) = 5 * 3 / 0.1 = 150

That means that it takes 150 days in the new account till the lost interest is recouped. Only from then on the money will earn interest at the higher rate. In other words: there is no point in transferring the money if you intend to withdraw or move it within the next 150 days.


As far as I know you can't transfer from the A&L directly to Cahoot. Therefore you have to take into consideration the indirection (A&L -> current account -> Cahoot).

You need to make an assumption - or test it with a £1 transfer - how many days it takes to transfer the money. Also, read both T&Cs. Some banks give you interest on the day the money is received, some don't; some pay interest on the day of withdrawal, some don't.

Of course, there is still a bit of a gamble element involved as you don't know when the interest rate is going to change again.

Always transfer on a Monday to get the transfer through before the weekend.

grumbler wrote:

0.1% difference in interest is equivalent to about 7 days interest.

based on an interest rate of 5%

If transfer takes 4 days you can win maximum 3-days interest

This conclusion is plain wrong!
You cannot derive the gain from the interest alone. The gain is a function of interest difference and time. Once the break-even point has been reached (see my previous post), the gain sets in and is determined by the time the money stays in the higher rate account.

Example
old account @ 5.0%
new account @ 5.1%
assuming 3 days of lost interest:

Break-even point = op * d / (np - op) = 5.0 * 3 / (5.0-5.5) = 30
(see previous post)

1) money remains in Cahoot account for 200 days altogether:
gain = pdiff * (200 - 150) / 365 = 0.5 * 50 / 365 = 0.068

For £50,000 that would be a gain of £34 interest.

2) money remains in Cahoot account for 300 days altogether:
gain = pdiff * (300 - 150) / 365 = 0.5 * 150 / 365 = 0.205

For £50,000 that would be a gain of £103 interest.



For the sake of simplification, all above calculations are based on the assumption that the interest rates remain unchanged in both the old and new accounts.

Where did you find this out ? Because I have had no emails or systems messages about this.

I have also been watching Cahoot regarding a rate drop and like Macce have had no emails and no system messages. However the rate is shown as 4.85 on 'This is Money'. I am also confused regarding who is affected if this info proves correct - all of us ? or will their be a difference for those currently on the extended 5.65%. Dont think so somehow.