Manipulating fixed rate savings

webmasterpolo

Every bank has the same term, it's there to cover themselves whatever happens, you can only do it and hope for the best. It does say that you won't have to pay penalties so perhaps this means you can close the account and keep the 7.67% gross rate or perhaps not. At the end of the day it's the best you're going to get.

-Web

edit - ah I was writing my post while runciblespoon posted.

DavidAC

The saying goes if it looks too good to be true it probably is, but I can't see a catch.

If you closed the 3 year account after 1 year you would get 6.67% compared to 6.55% if you had the same amount in the no notice account.

If you closed the 3 year account after 1 month you would get 6.67% / 12 = 0.556% compared to 6.36% / 12 = 0.53% if you had the same amount in the no notice account.

No matter when you close the 3 year account it would seem the return is higher. If interest rates go up you can close early and be better off. If interest rates go down the fixed rate gets even better.

Please don't rely on my calculations just in case I got it wrong. If they are wrong post corrections.

DeepSporran

DavidAC wrote: »

If you closed the 3 year account after 1 year you would get 6.67% compared to 6.55% if you had the same amount in the no notice account.

If you closed the 3 year account after 1 month you would get 6.67% / 12 = 0.556% compared to 6.36% / 12 = 0.53% if you had the same amount in the no notice account.

No matter when you close the 3 year account it would seem the return is higher. If interest rates go up you can close early and be better off. If interest rates go down the fixed rate gets even better.

You're correct when you compare the position after 1 month and 12 months, but at some point during the second year, the no notice account becomes better than the fixed rate account closed early (see my earlier post.)

Closing the fixed rate after 2 years, the 6.67% gross is only worth 6.46% AER, which is lower than the 6.55% AER paid on the no notice account.

So at some point during year 2, you would have a decision point. Will you need to make a withdrawal before the full 3 years ? Will interest rates go up or down ?

Of course, you would also have a decision point before that time if interest rates have gone up a lot - you'd probably close early.

refusnik

How about ending 3yr term deposit after 1 month and re-investing again?

6.67% gross is about 6.88% AER if compounded on a monthly basis.