Is a regular savings account better?

Or maybe look at the West Brom Magic 8 Regular Saver
7.85% and put in up to £1000 / month

Liz_the_Whizz wrote: »

That means if you look at the actual interest you get paid at the end of the year, it works out to be about half of the headline rate, ie 4% gross.

Nowhere near what you could get if you invest the lump sum from the start.

I think this is somewhat misleading. You would earn 7.85% pa gross on what you had in the regular saver for the time that it was there (which I agree roughly equates to 7.85% pa on £12,000 for six months, which equates to circa 4% of the closing £12,000 balance). But this ignores what you earn on the money you have today which isn't yet in the regular saver. If drip-feeding from a say 6.5% savings account then you would be earning 6.5% pa gross on the money that wasn't yet in the regular saver (ie. roughly equates to 6.5% pa on £12,000 for six months, which equates to circa 3.25% of the closing £12,000 balance).

What you would infact be doing is achieving an overall average return over the full 12 months of something like 7.17% [it would be fractionally lower because of days lost on BACS transfers etc].

You should also consider NS&I Index Linked Saving Certificates at this time of falling interest rates and inflation very likely to rise.

Please read other threads on this subject such as
http://forums.moneysavingexpert.com/showthread.html?t=718987

Liz_the_Whizz wrote: »

Am I working this out wrong?

Yeah but, No but...
4.47% is the equivalent rate of depositing £3000 on Jan 1st, but did you have £3000 available on Jan 1st?

You have to try to see the big picture, and put everything into context.
If you only consider the Reg Saver in isolation you are missing a piece of the jigsaw.
You need to think about where all the bits of money are at any point in time.

Assume we have an Instant Access account at 6% and a Reg Saver at 8%

case 1
you have no lump sum to start with, but can save £250/month from your salary:
It should be obvious that the best return will be from putting £250/month into the Reg Saver at 8%, as the only other option is putting £250/month into the Instant Access at 6%

case 2
you have £3000 lump sum but cannot afford to save from your monthly salary:
3 different options:
1 put it all in Instant Access and leave it there
2 keep it in your purse but put £250/month into Reg Saver
3 put it all in Instant Access and drip-feed £250/month into Reg Saver

1 gets you £3000*6% = £180
2 gets you (see MSE calculator) = £128.47
3 gets you a return from both accounts:
£128.47 from the Reg Saver (same as case 2)
but also an amount from the Instant Access because from Jan to Dec the balance
slowly decreases from £2750 to £0. This gets you interest of about £81.63
(a bit less than half of the £180)
so £128.47 + £81.63 = £210.10


£210 interest is the equivalent of getting about 7% from a £3000 lump sum for 1 year. So you end up with an average rate somewhere between the Instant Access at 6% and the Reg Saver at 8%

Transfer times between accounts can eat slightly into this, but it's only a small amount. The question is whether that extra %age is worth the hassle involved in setting it all up and keeping track of everything and remembering when the 1-year deals are finished, and if you need access to any of the money etc. For some people it will be, for others it might not.

Liz_the_Whizz wrote: »

Am I working this out wrong?

Nope, I make it £ 133.24 interest

Trick with doing this is to remember that you are only getting 8%/12 (for sake of argument, actual monthly calculation is ((1+8%)^(1/12)-1)*12)

On the balance per month which starts at £ 250 and increases each month.

To make a fair comparison for a year, you need to start with the assumption that you have £3,000 in a high interest account to begin with, say 6% gross and that you're shuffling the balance between them. So while part of your savings are getting 8%, the rest is earning 6%.

Think someone mentioned it but you'll lose a little bit each month for BACS processing time.