Check my maths please

mikeymo_3

I opened an HBOS reg saver in July. The rates then were:

10% pa or 12 % if I had at least £5k in another HBOS account. So I opened a Guaranteed Saver and put £5k in it. I've been putting £500 a month into the Reg Saver.

But the Guaranteed Saver is currently paying 5%. If I take the money out I only need to get another 2 % to make up the loss of going from 12% to 10% on the regular saver?

A little bit less infact.

Loss of 2% on an average of £3000 in the reg saver is equal to £60. £60/£5000 x 100 = 1.2 % therefore as long as I can get 6.2% somewhere else, which is easy, I'm up on the deal. Plus I don't have to leave the £5k tied up.

Is my thinking correct here?

Richard_Cocks

Yup, it does seem you could do better overall by switching the 5K and just taking the 10%.

dag_2

Um - do you have to leave the £5k in the second account for the whole term of the regular savings to make it 12%? Or is 12% rate applied to whatever ranges of dates you have £5k in the other account?

Assuming it's the more generous latter, I realise that basing your calculation on a £3000 average simplifies things, but it overlooks the fact that the balance of a regular savings account is weighted more to the later dates than the earlier dates. In other words, you lose out on more interest by not having the £5k in the second account during the later dates than you do in the earlier dates.

A closer approximation would be to base it on the average from now to the end of the term. Since it's now October, you've had three months, so the interest you'd lose out on would be closer to 2% of £3750, which would be £75 (if it was over a whole year, which it isn't because it's only nine months now), which would be 1.5% of the £5000. Yes, again, this is only an approximation, and doesn't take into account the effect of compounding.

More importantly, do check that the drop in interest on the regular saver to 10% doesn't get applied to the whole term of the regular saver, backdated to the opening date, if you withdraw the £5k. If it does get backdated, then the fact that it's now October and not July means that there's less than a year for the interest you might get elsewhere to catch up, meaning you'd have to find even more than 1.5% extra to make up for the loss.

YorkshireBoy

mikeymo wrote: »

But the Guaranteed Saver is currently paying 5%.

Are you sure you have the Guaranteed Saver and not the Guaranteed Saver Reward...which was available at the time and, from memory, paid an enhanced 6.25% rate (fixed for a year)?

mikeymo_3

Sorry, just rang HBOS. I'm getting 6.25% on the G'teed saver, which is fixed for a year.

It does need to be in for the whole year (to get the extra 2% on the Reg Saver), the Reg Saver finishes after 1 year and funds are transferred to G Saver.

On my maths in original post then I think I would need to find an account with 7.45% to put the money from the G'teed Saver into to be in the same position. Which starts to get a bit harder. I don't need instant access to the £5k in the G Saver, so I think I'll leave it where it is

sloughflint

There really is not much choice but to leave things as they are.
If you withdraw from the 5k, you lose 2% on your RS
You can withdraw 2.5k in one withdrawal and still keep the 6.25% going but you would then need to find a very high paying account to make up for the losses assuming you've had the account roughly 3 months:

(0.75*2500*0.0625+6.5*500*0.02)/(0.75*2500)=9.72%

opinions4u

If you get online access to your Halifax accounts, they put the rate on the account page - quite like their online service too!

You can also add to the Guaranteed Saver Reward account and get the 6.25% rate for the remainder of the year. If rates generally are falling this may just be a rather handy facility - with the one withdrawal allowed to get some/all funds out if the market moves unfavourably for you.