The Savings Fountain Discussion Area

ED

You're welcome, tiny1

lipidicman

Did you miss my calculation tip ED? Its really very easy to do with a spreadsheet and very useful if you want to check and you have made irregular payments (you can work out a daily rate and the number of days for each balance etc)

sd8974

Am I correct in thinking that the current ISA allowances are now to be extended to 2010 - as proposed last year in the pre-budget report and then confirmed in this weeks budget?

ED

lipidicman - thanks for the useful earlier post. I'll certainly try out the method you describe.

For simplicity, I tend to work on 'differentials' (not very precise, admittedly!).

Example, having opened an account 12 months ago, my nest-egg currently earns approx :

£12,000 @ 0.50% differential [gross interest]
(ie 5.85% in Derbyshire monthly savings a/c,
instead of 5.35% in Alliance + Leicester 'Online Saver')
= £60.00 EXTRA gross interest (= £48 extra interest net of tax @ 20%)

When a potential gain is small, I then also calculate the small loss for 2 or 3 days per month earning nil interest while £'s are in transit via Standing Order. (Incidentally, this weekend's Telegraph newspaper is to feature an article about same-day banking coming to the UK within 2 years, hopefully.)

It would be interesting to see other people's ideas of simple methods to evaluate whether to open accounts new to the customer, based upon interest rates. I believe sharing ideas can help elder people, along with youngsters, anyone new to freedoms beyond their one-and-only-ever bank + bdg society counters, and people considering starting with the Savings Fountain.

Milarky

lipidicman wrote:

You can do the calculation better

Do 1.0585^(1/12) (that's to the power of - there is no superscript here!) for the 'monthly rate' and we will call this 'm'

end of | balance why doesnt formatting work here?
month |
1 | 1000*m
2 | (1000*m + 1000)*m
3 | ((1000*m + 1000)*m +1000)*m

You can see this is 'iterative'. Each time you add 1000 and multiply by 'm'

This will cheer you up as the figure you get is slightly larger than the method you described! It is a more accurate way of calculating the interest - the banks will be even more accurate and do it daily.

But then you have to do the reverse on the account you are drip feeding from ie take away 1000 and multiply by the appropriate amount!

lipidicman,

If I have understood your post correctly, you are wanting to take into account compounding effects on regular saving accounts assuming that they don't always accure interest on a simple daily basis 'intra-year' - but compound interest daily - in effect.

As far as I know Egg is the only savings institution to do this and everyone else will work with 'simple' daily interest within the periods [typically a year] up to with they pay interest regularly.

More generally:

If you have simple daily interest, 12 equal monthly payments, the amount of interest expected becomes:

12 x single payment x 78/144 x annual interest rate x 80%

Here, the factor of '78/144' is just the sum of 1/12th x 12/12 + 1/12th x 11/12 + 1/12th x 10/12... for all the time that each payment made spends on deposit in the account. This is the 'upper limit' for RS accounts, because it assumes each payment reaches the account and begins earning interest from the first day of every month - in parctice this cannot be achieved. [The '80%', by the way, is there to allow for tax for basic rate taxpayers - it would be '60%' for higher rate taxpayers, of course]

The 'lower limit' will involve a factor of '66/144' instead [that is, 1/12th x 11/12 + 1/12th x 10/12 etc] where each payment reaches the account only on the last day of each month.

The 'median' of these two limits will be '72/144' of course - exactly half - based on the assumption that each month's payment reaches the account a the mid-point of each month [on average]

A 'quick and dirty' way of estimating annual interest is to take a figure somewhere between '78/144' and '66/144' proportionate to when you think inthe month the regular payment hits the account.

For instance, if your standing order leaves your bank on the '1st' and takes two days to reach your RS account that would be at least '1/144th' of a year later. Thus you would subtract '1/144th' from the upper limit '78/144ths' to give '77/144ths'. But, make further allowance for the inevitable weekends and bank holidays, you would have to add a further two days on this average. So you will then be subtracting a second '1/144th' from the above and come out with an adjusted factor of about '76/144'

So my best 'guesstimate' for a RS account paying 5.85% interest on £1000 monthly payments, set to the 1st of each month, would become:

12 x £1,000 x 76/144 x 5.85% x 80% [60%]

ED

Do all building societies + banks calculate interest accurately, according to the precise day each monthly deposit reaches the account?

Or do any of the BSs + banks assume deposits arrive mid-month?

Some savers make the effort, each month, to adjust the date of Standing Orders so cleared funds arrive on the 1st day of the following month, or first available banking day thereafter.

eg :

30 March - SO departs source a/c

1 April - cleared £'s reach regular saver a/c

Milarky

30 March - SO departs source a/c

1 April - cleared £'s reach regular saver a/c

Snap! I'm paying Abbey RS from cahoot [3 days] so making April's payment leave on 29th this time. It should arrive OK on the 1st [Friday] but what if it 'falls short' and got there on 31st March instead - how do explain that to a company that insists on being paid by a SO that arrived in the 'wrong' month?

Seriously though I believe that all these organisations do calculate interest accurately on a daily basis - not assuming that payment on a particular date [in any case they don't know when in the month to expect payment as you set up the SO yourself - they insist that you decide!]

BTW, I read recently that Lloyds are currently the only bank to credit BACS payments with extra days interest after these leave the account]

ED

Milarky - indeed that is interesting about Lloyds TSB crediting outward BACS payments with an extra day's interest after debiting the account.

Trouble is Lloyds doesn't seem to want me, as I don't have a large salary - but have told them my house-sale proceeds will for several years be filtered from external savings accounts into numerous monthly savings accounts via a current a/c such as Lloyds...

Anyone resolved this sort of dilemma?

Hobo_2

Katie,Thats worked for you, i`m in the same boat myself one thing that concerns me though when as in your case 6/7 yrs are reached it means you have no mtg but no savings , would have been useful to at least have used, as a couple your cash ISA allowance £30,000 till 2010 while it was available for retirement planing etc.
Then continue to pay mtg £30,000 off as it will be a smaller % of income by then.
Even better if you could offset while in the Isa wrapper, i only know of Intellegent Finance https://www.if.com who do this, not sure if it works the same as the One Account that being a cam mtg

BUNNYSLAVINGMATTERS_:)=

Hi there.

In response to the I.S.A. investment's. If I am on benefit's I still am a tax-payer right?

Also with regular savings how much % is taken by tax man?

And with an instant I.S.A. if they pay annually, do they pay interest on the total amount that you have invested, or the amount that is in there at the time it pays out the interest?

P.S. Virgin newbie... Great site, been fantasising about a site like this for a long long, but not innocent time!

:beer: :T :beer: :T :beer: :T :beer: :T :beer: :T :T :beer: