Manipulating fixed rate savings

webmasterpolo

small query to see if my thoughts on this are correct before I act on them...

I've got a Kaupthing instant access account, paying 6.36% gross.

Now looking at their fixed terms, the 3 year deal pays 7.67% gross if you make no withdrawals for 3 years. If you do make a withdrawal it has a 1% drop so it will pay 6.67% gross.

Now why wouldn't you put your money into the fixed term deposit for 3 years even if you expect to make a withdraw? It pays 0.31% gross more than the instant access account and it fixs the rate so it can't drop. If it rises you can just withdraw it and do it again at the higher rate.

Their terms and conditions:
"
Withdrawals

21.1.2 During the Term of a Deal

[FONT=Arial,Arial][FONT=Arial,Arial]

a) If you want to withdraw funds from a Deal part way through a Deal Term, the Deal must be closed in
full on a Business Day i.e. no part withdrawals are allowed.
b) On the date of closure ("Deal Break Date"), the original Deal will be cancelled and replaced by
another Deal ("Replacement Deal") for a revised Deal Term commencing on the date that the
original Deal was set up and expiring on the Deal Break Date.
c) The interest earned on the Replacement Deal will be calculated at the Deal Break Interest Rate for
each calendar day during the Deal Term, excluding the day of closure.
d) The Deal Amount for the Replacement Deal plus all interest earned at the Deal Break Interest Rate
during the Deal Term will be automatically credited to the Savings Account.

e) Other active Deals will not be affected by the early closure of one or more other Deals.

Interest
[/FONT][/FONT]

22.1.1 Fixed Term, Unbroken Deal

[FONT=Arial,Arial][FONT=Arial,Arial]

a) Interest Calculation
Interest will be calculated on the Deal Amount, for each calendar day during the Deal Term, excluding the day of
expiry if it is a Business Day, or if it not a Business Day, the Business Day after the Deal Term expires. The
interest rate is fixed for the full Deal Term as detailed in the Interest Rate section of the Website.
b) Interest Payment
Interest will be paid into the Savings Account at the end of the Deal Term.

[/FONT][/FONT]

22.1.2 Fixed Term, Broken Deal

[FONT=Arial,Arial][FONT=Arial,Arial]

a) Interest Calculation
Interest will be calculated on the Deal Amount at the Deal Break Interest Rate for each calendar day from the
Deal start date up to (but not including) the Deal Break Date.
The Deal Break Interest Rate is fixed throughout the Deal Term as detailed in the Interest Rate section of the
Website.
b) Interest Payment

Interest will be paid into the Fixed Term Deposit Account on the Deal Break Date which must be a Business Day.
[/FONT][/FONT]"

Seems pretty simple to me.

Have I just worked out a top instant access account paying 6.67% gross? Any ideas?

-Web

webmasterpolo

108 views and no posts??

Does no one have a comment?

-Web

jonesMUFCforever

In addition to the drop in interest rates is there any interest penalty at all?

Stompa

webmasterpolo wrote: »

Have I just worked out a top instant access account paying 6.67% gross? Any ideas?

I very nearly posted this same question a few days ago, but figured I must have missed something obvious!

It seemed to me that you could also circumvent the 'no part withdrawals' problem by simply opening multiple deals (so some might potentially reach 3 years and earn the higher rate).

webmasterpolo

the terms only say that 1% reduction in interest, there is no loss of interest already earned.

-Web

webmasterpolo

Exactly what I was thinking Stompa. £10,000 into 5 x £2,000 fixed term deals, therefore securing the high rate on any that aren't accessed within the 3 years and getting the lower rate only on the few that you do access if any.

-Web

YorkshireBoy

These two recent threads should provide the answer to your question.

http://forums.moneysavingexpert.com/showthread.html?t=1070479

http://forums.moneysavingexpert.com/showthread.html?t=1056391

webmasterpolo

Hi Yorkshire Boy

Had a quick look at those thread and I don't see an answer, they talk about cancelling an old deal to go for a new deal. But the fact remains that the break rate of interest on the fixed account is higher than the rate of interest on the the instant access account.

-Web

YorkshireBoy

Isn't the principle the same, ie you CAN close early...and the only penalty is the -1% break rate?

Therefore the answer to your question "Have I just worked out a top instant access account paying 6.67% gross?" is clearly yes...isn't it?

Maybe you're looking for something that isn't there...and that's why you haven't had any replies until this evening.

LittleVoice

webmasterpolo wrote: »

the terms only say that 1% reduction in interest, there is no loss of interest already earned.

-Web

In a way there would be loss of interest already earned - assuming interest is paid annually and not just at the end of the 3-year term. If you closed the account early in year 3, the recalculation goes back to day 1 (of year 1) and so the capital would be reduced.

webmasterpolo

LOL you're right, so I'm right, UK's top instant access account paying fixed rate of 6.67% gross. I'll have 5.

-Web