Birmingham Midshires 5 year bond in email

N5girl

Hi

I have just received MSE email with details of the 5% BMS fixed rate bond account- it says that you can withdraw funds from the 5 year bond with 90 days of interest. I have just read the T & Cs on the webisite and it says no withdrawals are allowed for 2 years. Have I missed something?

Thanks

L

alanq

"Can I make a withdrawal from this account? If the Fixed Rate Bond is below 2 years no withdrawals are allowed. For Fixed Rate Bonds that are 2 years and over, you can make withdrawals subject to 90 days loss of interest on the amount withdrawn."

A 5-year bond is for more than 2 years so the 90 day rule applies and withdrawals can be made at any time during the 5-year term subject to loss of interest.

http://www.askbm.co.uk/savings/p/fixed/faq/intro.asp

N5girl

Ok thanks - I was reading that as it meant that withdrawals were not allowed until the bond had been in existence for 2 years rather than it being a general term they were using to describe all their fixed rate bonds.

Thanks for the clarification

L

hootsjimmie

In today's email Martin says "The massive rate means as long as you withdraw after 9 mths or more, it'd beat the current best buy instant access accounts"

However the rules of both bonds appear to me to say that withdrawals are not permitted within the first 2 years.

D1zzy

hootsjimmie wrote: »

In today's email Martin says "The massive rate means as long as you withdraw after 9 mths or more, it'd beat the current best buy instant access accounts"

However the rules of both bonds appear to me to say that withdrawals are not permitted within the first 2 years.

No according to Saga (and its the same bond)- you can withdraw anytime as long as your fixed rate period is at leat 2 years. If you have a 1 year bond no withdrwals are allowed. I opted for the Year Saga bond 5 yr (5.1%) as withdrawal after 2 years with 90 days loss of interest was equivalent to their 2 year bond at 4.3%.

Couple of things to be aware of -
loss of interest is a penalty based on a Gross interest figure - but you will still be taxed on the whole amomount of interest you received

If you have not accrued enough interest to cover the penalty it comes off your capital.

Reaper

Mybe I'm being a bit thick this morning but Martin's email seems to be wrong. He says it is a "90-day notice account"

But it is not. It seems to be instant access with a penalty equivilent to 90 days interest, which is a very different thing as it means the penalty is unavoidable for any withdrawal before the 5 years is up.

Your money is tied up for the full term, however withdrawals are allowed subject to a 90 days loss of interest on the amount withdrawn.

EDIT: Re-reading Martin's email I suppose he does say it in the end, but I think he should have avoided using the term "90 day notice account" which is misleading.

Jonbvn

Wow,

This account is far superior to the Investec High 5 account. I think I will be moving some money.

BTW, this offer is unlikely to last long, similar to the Newcastle BS offer.

psychic_teabag

D1zzy wrote: »

Couple of things to be aware of -
loss of interest is a penalty based on a Gross interest figure - but you will still be taxed on the whole amomount of interest you received

If you have not accrued enough interest to cover the penalty it comes off your capital.

I've been pondering this, and I wonder if it's better to get the interest annually rather than monthly. Note that this is just speculation, and makes a lot of assumptions about the way the penalty is actually applied. I'd been meaning to get round to asking them, but now that this trick is out in the open, I suspect I won't get round to it before the issue gets withdrawn.

Suppose I invest 1200 @ 5% / year, then withdraw 800 just before first year anniversary.
Gross interest is 5/month, 60/year
Net interst is 4/month, 48/year.
Penalty is 1/4 year of 800, ie 10 (gross).

Assume model is that my interest is accumulated gross in a pot with my name, then tax is deducted when it is credited to my account at the specified interval. The penalty is taken from this pending interest pot in preference to the capital.

If interest is paid annually, the pot contains 60, so they can deduct 10 from the pot, then the gross interest is 50, so the tax is 10. So I receive 40 net for the year.
With monthly interest, I have received 11 net payments of 4 already. Pending pot contains 5, which is not enough to cover the penalty. So I lose the whole pending pot, plus 5 from the taxed interest already received. So I get no interest that month, and lose 5 from the capital, giving a total income of 39 net for the year.

The bottom line is that, if this model is correct, it is better to withdraw money while there is sufficient pending (not-yet-credited) interest to cover the penalty, and if you get the interest annually, the window is larger. But on the other hand, they might just remove the penalty from the capital directly, in which case all the above is just bunkum. (It should be obvious that I currently have an abundance of spare time...)

D1zzy

psychic_teabag wrote: »

I've been pondering this, and I wonder if it's better to get the interest annually rather than monthly. Note that this is just speculation, and makes a lot of assumptions about the way the penalty is actually applied. I'd been meaning to get round to asking them, but now that this trick is out in the open, I suspect I won't get round to it before the issue gets withdrawn.

Suppose I invest 1200 @ 5% / year, then withdraw 800 just before first year anniversary.
Gross interest is 5/month, 60/year
Net interst is 4/month, 48/year.
Penalty is 1/4 year of 800, ie 10 (gross).

Assume model is that my interest is accumulated gross in a pot with my name, then tax is deducted when it is credited to my account at the specified interval. The penalty is taken from this pending interest pot in preference to the capital.

If interest is paid annually, the pot contains 60, so they can deduct 10 from the pot, then the gross interest is 50, so the tax is 10. So I receive 40 net for the year.
With monthly interest, I have received 11 net payments of 4 already. Pending pot contains 5, which is not enough to cover the penalty. So I lose the whole pending pot, plus 5 from the taxed interest already received. So I get no interest that month, and lose 5 from the capital, giving a total income of 39 net for the year.

The bottom line is that, if this model is correct, it is better to withdraw money while there is sufficient pending (not-yet-credited) interest to cover the penalty, and if you get the interest annually, the window is larger. But on the other hand, they might just remove the penalty from the capital directly, in which case all the above is just bunkum. (It should be obvious that I currently have an abundance of spare time...)

.....................I need coffee!!

I think the pending issue is irrelevant - interest is calculated daily so the penalty will be 90 x the daily rate whenever its applied, and my understandig is they do nick your capital if you do not have enough interest to cover the penalty.

AirCooledHeaven

psychic_teabag wrote: »

The bottom line is that, if this model is correct, it is better to withdraw money while there is sufficient pending (not-yet-credited) interest to cover the penalty, and if you get the interest annually, the window is larger. But on the other hand, they might just remove the penalty from the capital directly, in which case all the above is just bunkum. (It should be obvious that I currently have an abundance of spare time...)

I think you will find that if you have an annual interest paying acount and you make a withdrawal before the 12 month anniversary, they will calculate the penalty based on the capital plus the accrued interest to date.

AirCooledHeaven

Given that the annual interest and monthly interest accounts both have the same % AER, on what basis should one decide between them