A&L premier 10% account: schoolboy maths question

FiscalFox

So it appear Alliance and Leicester are offering a whopping 10% AER on their Premier Regular Saver account ...What's the catch?

Also:
The account lasts a year and offers 10% gross aer, interest paid on maturity.
You can only put in a maximum of £3,000, and it has to enter the account in 12 x £250 installments.

So:
If i did this, how much interest would i get after 1 year?

The maths baffles me. Can some kind soul(s) shed some light?

elster_2

well , i work it out to be about £3141, at a starting balance of zero and 250 a month for 12 months , at 10% ,

ie about 141 interest or 141/3000 = 4.7 AER in real terms ... which is not that great (ICICI is better ) for example?

cornerclose

Hi, The "catch" is probably that it ties your money up for 1 year - if you take any out they close the account.
The exact maths is complicated to do because of compound interest, and it depends if they compound it daily (usual) or work it out at the end of the month. On a rough monthly calculation the pre tax interest should come to something like £167 for the year. Do remember this is not interest for a whole year on £3000 - the money that has not yet been invested in the account could be earning say 5% elsewhere. So if you started with £3000 in a 5% account and fed it into the 10% account at a rate of £250/month you should get about £167 from the 10% account and about half that (say £83) from the 5% account = £250 gross overall.

grumbler

FiscalFox wrote:

...
If i did this, how much interest would i get after 1 year?

The maths baffles me. Can some kind soul(s) shed some light?

See Regularly Beat the Best Savings Accounts article and my post #9 in the discussion ...

Gross interest over 12 months is very close to £250*6.5*10%

innovate

Fiscalfox, there's another thread about a similar question here . I created a spreadsheet based on information in that thread, and the answer is: it depends!! The answer to what the A&L Regular Saver could be worth to you is anything from minus £19.47 to plus £134.06 (all after tax)- - - or thereabouts!

It depends on how you fund the payments into the Regular Saver, whether you already have exhausted your ISA allowance, whether you are a basic or a higher rate tax payer, how much you pay into the Regular Saver every month and when you pay it in, how the bank calculates the interest, and finally, whether you look at the interest you get before or after tax.

innovate

Fiscalfox, I am hesitant to make this offer - but if you PM me, I would be happy to send you my spreadsheet. Reason I am hesitant is that the whole thing needs a lot of sidenotes and my spreadsheet doesn't have any sidenotes.

My bottom line after hours of Excel-ology is, for somebody who saves £250/month from new income:

• if you do not pay tax, go for the Regular Saver
• if you do pay tax and if your ISA allowance is already taken, go for the Regular Saver
• if you do pay tax and your ISA allowance is not already taken, then
  • if you are basic rate tax payer, you are likely to get a few more quid from the Regular Saver. However, this comes at the expense of not having your funds in a tax-free wrapper for subsequent years, so it is probably not worth the short term gain!
  • if you are a higher rate tax payer, you will definitely do better if you pay £250/month into an ISA

If you have £3K in existing funds (i.e. in an account which already pays you interest on it), it may or may not make sense to consider moving the £3K to a Regular Saver or an ISA - it all depends on how much interest you get already for the funds. Assuming your existing funds earn less than the best ISA rate you can get, investing them in an ISA as a lump sum is invariably a better idea for tax payers (basic or higher). For non-tax payers, the Regular Saver could well win, though it's all a matter of just a few pounds and probably not worth the hassle.

I bet you now wish you never asked :cool:


Edited: my calculations all assume a top-rate mini-cash ISA (like the A&L 5.2%)

FiscalFox

Hey everyone who has contributed to this thread: A big THANKYOU! Yes, i'm talking about Grumbler, Albertross, Cornerclose, Elster and Innovate- youre brilliant! Interesting reading, which has taught be once again that nothing is as good as it seems when it comes to banks!

Innovate wrote:

My bottom line after hours of Excel-ology is, for somebody who saves £250/month from new income:

if you do not pay tax, go for the Regular Saver
if you do pay tax and if your ISA allowance is already taken, go for the Regular Saver
if you do pay tax and your ISA allowance is not already taken, then
if you are basic rate tax payer, you are likely to get a few more quid from the Regular Saver. However, this comes at the expense of not having your funds in a tax-free wrapper for subsequent years, so it is probably not worth the short term gain!
if you are a higher rate tax payer, you will definitely do better if you pay £250/month into an ISA

Innovate: Thanks for the awesome summary!

At the moment i have my £3,000 quota in a Halifax ISA (shortly to be moved to a First Direct e-isa; 5.5%!). The £3,000 i might put in such an account would be saved on a monthly basis; in other words it'd be fresh money.

I originally saw the "10%" offer and, despite common sense, my eyes popped out on stalks. I had been considering putting my dosh in an index tracker, which (although not guaranteed) could well pay a decent return.

I checked out the other thread (re: the 'Dagobert' one), looked at the formulas and my head nearly exploded! I think therefore, i'd prefer to wait on the spreadsheet (i reckon i'd need the notes/crayoned pictures before i understood it properly...but a hearty thanks for your kind offer! )

innovate

Albertross, your logic seems flawless - - though one important aspect to consider is whether you would want to forego the tax-free advantages of an ISA in subsequent years for a minor gain (less than £20 for higher rate payer, £52 max for basic rate payer) in the first 12 months

If I remember right, ISAs will still run until 2010 at least, so making a 'quick kill' in 2006 might actually turn out a shot in the foot, unless something miraculous gets announced in the next budget or by a bank. We know how likely that will be

I personally am using the A&L regular saver - but only because I have already exhausted my ISA allowance this tax year, and will do so again next. I would not go for the Regular Saver in preference of an ISA. It's a personal decision, though, and for someone who wants to use the savings in 12 months time, the Regular Saver could well be the better option.

isasmurf

Well said, innovate. :T I keep trying to tell friends and acquintances don't be blinded by these high interest short term regular savers and look longer term. Always use your ISA first. Sometimes I feel like I'm hitting my head against brick wall though! :rolleyes:

chachiluz

Hi innovate help!! I want to try to save for my next year's tax bill. I have xhausted my ISA allowance this tax year, and will do so again next, but I wanted to try to accumulate enough money for the tax man is the A&L regular saver a good idea? or should I just put the money in a normal savings account.
Remember I am new to this.
Many thanks

innovate

chaciluz, if you know need the money in 12-18 months' time and cannot put any more into an ISA, then I would maximise the interest I can get from a Regular Saver, and the A&L one is currently the best.