Monthly/Regular Savings - the catch?

newfoundglory

About 3 months ago, I saw a Halifax "personal financial advisor". Each month I was paying in £500 into the hx monthly saver, and a further £250 into the 7% regular saver. Basically, I have a number of these regular savers... i have the 8% with Lloyds and another 8% with norwich and peterborough too.

She wasnt bothered about the monthly saver, but everyone in the branch seemed to be concerned about paying 250/month into the 7% regular saver account - and I have no reason to think she was lying. She proved her point by scribbing the maths on a piece of paper (i'm sure she was right - i just cant remember why!). It showed that anyone who (even they are shifting money from internet savings accounts to the Regular Saver) is better off leaving the money where it is!

Of course, with the Regular saver you don't get 7% on the full amount.... but I am beginning to think it was the fact that interest on the regular saver is NOT calculated on a daily basis....?? I took her advice, and now pay the minimum into the regular saver until it ends. Since I cant remember what her point was, does anyone have any idea what it might have been?

Merlin139

You only get the 7% on the first month. Each month it reduces. It is around 6.4% for 2nd month, 5.8% for 3rd month, 5.2% for 4th month, 4.7% for 5 month. and so on.

Blue_Lou

She was probably on commission!

I recently closed a HSBC regular saver and they still give you interest on money paid in despite only being 7 months into it.

Bisoy

Hi newfoundglory,

You have raised a very interesting issue here and I hope somebody could share and expand a bit more. The reason I was keen to know is my wife and I are about to open a regular saver account. If you read my other post regarding regular saver vs. e.g. ICICI basically just want to know which one are we better off. We both have already used our full ISA subscription and both have ICICI account. I am hoping some experts share their thoughts. Many thanks.

Merlin139

Look at what Martin has to say on the subject:

http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid1108401263,93536,

Riviera_Kid

I haven't done the maths, but as an example:

Ing Direct Savings Account - 4.75% AER
Halifax Monthly Saver - 7% AER

And from reading Martin's article here - http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid1156249740,89525, .

"The AER or Annual Equivalent Rate is the official rate for savings accounts, and is designed to allow easy comparisons as it’s meant to smooth out the variances between accounts (it’s the equivalent of the APR for debts).

The idea is it shows what you’d get over a year if you put your money in the account and left it there. The alternative is the Gross rate, which is the flat rate of interest that’s actually paid.

Frankly this next bit is about to get seriously complicated, and unless you’re finding it all clear so far, I’d skip it, read on and just remember the real lesson is ‘always compare like with like, thus AER with AER or Gross with Gross."


So it doesn't matter whether interest is paid monthly or yearly

PoorDave

If i understand your Q correctly, the A is something like...

You have £3000 in an internet saver at 5%p.a. (gross).

You pay this to the reg saver 250 at a time, so 0 in int saver, £3k in reg saver by end of year.

Average balance in reg saver is £1.5k (although this depends slightly on when in the month you pay in, and when the end of year is...), so @ 7% your interest is 0.07 x 1500 = £105. You will also get the 5% on whatever's left in the int saver each month @ 5% = 1500 * 0.05 = £75. Total int = 105 + 75 = £180.

Had you left £3k at 5% in the int saver, you'd get £150, so actually less.

The trick when comparing is not to forget that you still get interest on whatever's left in the place you're taking the money from to feed the reg saver.

But you can get a 12% reg saver from alliance & leicester, although the general feeling on here seems to be that the lloyds one at 8% is best, as it runs for 2 years. I could be wrong...

Bisoy

Merlin139 wrote:

Look at what Martin has to say on the subject:

http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid1108401263,93536,

I've read Martin's article and now very convinced that we open both of us.

Cheers

SeanW

A regular saver is worse off if you have £3000 to save now, use the regular saver, and leave the rest in your wallet. Of course you wouldn't.

If you had £3000, and fed an 8% regular saver with £250 from your wallet each month, you'd make around £130 gross interest, which is only 4.3% gross. So you would be better putting the £3000 into ICICI @ 5.15%.

However, if you put the £3000 into a bank paying 5.15% and fed the regular saver from there, you'd make the same £130 on the regular saver. You would also earn around £70 gross interest in your savings account. Therefore you make around £200, which is 6.5% gross.

The real catches are those that make you:

(1) Open a bad current account and pay in your salary.
(2) Give you bad interest if you must withdraw before the end.

homersimpson_3

another catch is with some regular savers you cannot have access to money until it ends or you die!

shazkhan111

all regular savers are loss leaders for banks .... that is why u cant open most of them online.....its costs them money to pay you 7% interest....however it gets u through the door or on the phone where they can give you other products which make them money