Manipulating fixed rate savings

YorkshireBoy

LittleVoice wrote: »

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.

It's 'interest on maturity'...7.67% gross p.a./7.15% AER.

webmasterpolo

The original capital itself is never reduced.

The interest is back dated at the lower rate to the day you opened the account if you make a withdrawal. So it's as if the rate was 6.67% when you opened the account. Which is 0.31% more than the instant access account.

-Web

DeepSporran

If I've got it right, the numbers on this work in a curious way.

If you don't withdraw anything during the 3 year term, you get 7.67% gross, but that's only 7.15% AER, because they only add the interest at the end of the 3 year term - you don't get the compounding affect that would happen if they added the interest annually. That means that if you withdrew your money just one day early, then the gross rate drops to 6.67, but the AER drops to about 6.26 which is not quite so good (though still not bad).

On the other hand, if you withdraw your money after exactly 1 year, the gross and AER are the same, 6.67%.

So your "instant access account" is 6.67% AER after 12 months, then it starts to drop its effective rate until it gets to 6.26% AER up to 2 years and 364 days, then jumps back to 7.15 AER at 3 years.

Jonbvn

I think that if we all decide to use the 3 year fixed rate account in the same way as an IA access account jumping in and out, then KE will likely change their T&C's!

BTW, the OP is correct AFAIK!

Waldir

webmasterpolo wrote: »

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.

If you make a withdrawal, is it written that you get 1% drop or 6.67% gross?

As others have pointed out, the 7.67% interest is actually only 7.15% AER, so if it is written "-1% drop", it'll give you only 6.15% AER.

Stompa

Waldir wrote: »

If you make a withdrawal, is it written that you get 1% drop or 6.67% gross?

It says:

36 MONTH FIXED TERM
Gross Interest Rate 7.67%
Break Rate 6.67%

webmasterpolo

I've signed up to the 3 year deal, which I will treat as instant access as it will give me more interest than the instant access account alone.

I'm sure they will change the T+C's if everyone starts signing up and then withdrawing, so I've done it quick ahead of the game.

-Web

runciblespoon

Jonbvn wrote: »

I think that if we all decide to use the 3 year fixed rate account in the same way as an IA access account jumping in and out, then KE will likely change their T&C's!

True, but they can't change retrospectively. This account will probably be withdrawn in a few weeks/months anyway. Unless people are going to be putting money in then withdrawing it a few weeks later, the account will be closed to new savers before KE have noticed lots of people withdrawing. At which point they can't do anything - the terms of existing accounts can't be changed.

YorkshireBoy

runciblespoon wrote: »

...but they can't change retrospectively... the terms of existing accounts can't be changed.

Really? Condition 3.1.2 seems to say they can...

http://www.kaupthingedge.co.uk/Includes/PDF/tandcs.pdf

runciblespoon

3.1.2 In accordance with Banking Code guidelines, if any change we propose to make to the Terms and Conditions is to your disadvantage or materially changes the terms of the Account, we will tell you about it by one of the Communication Methods at least 30 days in advance of it becoming effective (which will be on and after the date that it has been made on the Website) and you may, at any time up to 60 days from the date that we tell you, change the Account or close it without having to pay any additional charges or interest for doing this.

Standard contract stuff. It means that if they decide to change the terms to your disadvantage they have to give you the option of walking away, with interest paid at 7.67% up to that point. So yes they can change the terms, but they can't do it to lock you in (unless you're asleep for those 60 days).

OK, so there's a small risk they might do this. But you'd end up with all your money back plus 7.67% interest for the time it spent in there. At which point you've still won over any other savings account you might have put it in.

The moral, though, is to pay attention to any emails KE send you just in case something like this happens (because that's probably one of the 'Communication Methods') - make sure you won't overlook it.