Regular Savings accounts - interest is less than you expect

nig0609

Mistert wrote: »

Halifax Bank say they'll give you £5 a month if you invest £1,000 every month. It claims to be 6.25%. But if you put in £1,000 a month which is £12,000 in the year you only get £60 back. Surely the true rate of interest is 0.5%?
Mistert

6.25% is gross, so less tax it is 5% (0.8 * 6.25%)

nig0609

Mistert wrote: »

Halifax Bank say they'll give you £5 a month if you invest £1,000 every month. It claims to be 6.25%. But if you put in £1,000 a month which is £12,000 in the year you only get £60 back. Surely the true rate of interest is 0.5%?
Mistert

Also, I am sure you don't have to keep all the money in there - can't you earn the £5 on it and then transfer it to savings??

Paul_Herring

chaddman wrote: »

No 'rb10' I stand by my belief that you only get 0.54 of the quoted interest.

Rubbish. You get the quoted interest. For the amount of money put in for the amount of time it's in there.

Tel me this: Would you really complain if you opened a normal 6% savings account, put a lump sum in for a month, closed the account after that month and only received 1/12th of the 'quoted rate?'

Mikeyorks

Mistert wrote: »

Halifax Bank say they'll give you £5 a month if you invest £1,000 every month. It claims to be 6.25%. But if you put in £1,000 a month which is £12,000 in the year you only get £60 back. Surely the true rate of interest is 0.5%?
Mistert

You're a bit wide of the mark.

It's a Current Account. And it pays £6.25pm gross (£5 net) ... if you fund the account with a minimum £1k per month.

It doesn't pretend to be a % rate ..... it's a flat sum payment. If you want to convert to % .... that depends on your average balance. If you keep an average £100 in there - it's the equivalent of 75%

Mikeyorks

chaddman wrote: »

The point being that these banks try to flog these accounts at what seems to be an attractive rate but at the end of the period you may be surprised to receive less interest than you thought you were going to get.

Then you need to inflate not just your interest ... but also your knowledge?

Doing a bit of reading before a bit of posting .... does it every time?

http://www.moneysavingexpert.com/savings/best-regular-savings-accounts#dont

Milarky

chaddman wrote: »

Correct. The point being that these banks try to flog these accounts at what seems to be an attractive rate but at the end of the period you may be surprised to receive less interest than you thought you were going to get.

There are many, many, many 'happy' investors in regular savings accounts (repeat offenders, even!) They remain happy in the full knowledge of the actual interest they will receive. They don't feel cheated, abused or misled as a result - probably because (with all due respect to you, friend) they clearly grasp the concept of 'interest' as a payment for money whilst it is on deposit.

If I'm offered 7% regular saving or 5% fixed rate lump sum. I'm going to 'use up' the former offer first - so will end up putting a lesser amount in the latter. This is because '7' is more than '5' - and that is all I need to 'know'.

rb10

Milarky wrote: »

If I'm offered 7% regular saving or 5% fixed rate lump sum. I'm going to 'use up' the former offer first - so will end up putting a lesser amount in the latter. This is because '7' is more than '5' - and that is all I need to 'know'.

It is, however, a little more complicated than you make it seem.

The fact that '7' is more than '5' does not include the fact that, if you have a lump sum at the start of the year, the money will have to be sitting in another account for, on average, just under half the year, earning at a rate probably less than 5%, which reduces your Regular Saver average. In this example, as long as the feeder account is earning at least 2.64%, then the Regular Saver account is better.

But you have to understand the concept of interest to work this out. It is the people who do not understand this concept who feel they have been 'hoodwinked' by the bank into thinking they would get more interest than they in fact will.

Aegis

It's only fair if you compare like for like. If someone's looking to save a fixed amount on a regular basis, am I going to talk to them about a fixed term account (totally inappropriate), a variable and flexible account (generally much lower interest rate) or a regular saver?

The fixed term account simply wouldn't work for monthly savings, and the flexible accounts are maybe giving between 2 and 4% interest at best at the moment. Even assuming 4%, that means that someone regularly saving into one of those will be getting a little over 2% over the year before tax, while someone using the 10% regular saver will be getting about 5.5%, clearly a far better result than the other option.

Of course, even getting 5.5% fixed for a year at the moment is tricky, so for £3000 you're better off using a 10% regular saver funded from a flexible saver than you are by taking out a fixed term account, so all in all, regular savers are looking rather nice at the moment.

ffacoffipawb

chaddman wrote: »

Correct. The point being that these banks try to flog these accounts at what seems to be an attractive rate but at the end of the period you may be surprised to receive less interest than you thought you were going to get.

Only if you're a bit thick.

jennifernil

Mikeyorks wrote: »

You're a bit wide of the mark.

It's a Current Account. And it pays £6.25pm gross (£5 net) ... if you fund the account with a minimum £1k per month.

It doesn't pretend to be a % rate ..... it's a flat sum payment. If you want to convert to % .... that depends on your average balance. If you keep an average £100 in there - it's the equivalent of 75%

or , if you open the 3 accounts you are allowed,keep only £1 in them, and move the £1000 around them and back to a savings account, you get £180 per year, which is......erm, a lot of interest on your £3!

Or 18% on your £1000, plus whatever you earn on it in the savings account. And since it is nett of tax, a non taxpayer can reclaim another £45.