Monthly/Regular Savings - the catch?

masonic

This is the second post where someone has been advised against using regular saver accounts by their bank this week. I think the moral of the story is never go to your bank for financial advice. Ever. They cannot be relied on to give you the whole story.

SeanW

I had to request a call back with HSBC, where I was offered a finanical review etc... from them, and asked other marketing type questions. She started the call querying why I didn't just apply online, rather than asked for a call back, and I said because you can't, which she said maybe was a technical reason, you still can't today!

Bisoy

PoorDave wrote:

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...

PoorDave got it absolutely right and it might also the answer that newfoundglory has been looking for. :beer:

Jake'sGran

PoorDave wrote:

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 '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...

I have been having a similar dicussion on another thread and the result was that they consider that "I just don't understand".

I have just studied the A&L web page and the £500 that has to go into the monthly saver each month must come from their Premier Current Account paying 1.49% and they say the interest on the 12% monthly saver is 5.9%. (You get 12% only on the first £2500).

Just imagine having to move money from a simple savings account paying 5%, taking 3-4 days for that to happen to a current account paying 1.49% and then.... Its not for me. A&L can keep it. No wonder they give £50 to people who tell a friend and the friend gets £50 too.

masonic

PoorDave wrote:

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...

I didn't believe it, but you are right [EDIT:, but only just (and then only a technicality ) after my correction below...]

A&L:
Interest earned in 1st year: £250 x [(12 + 1) x (12 / 2)] / 12 x 0.12 = £195
Interest earned in 2nd year*: £250 x [(9 + 1) x (9 / 2)] / 9 x 0.12 = £150

[EDIT: Neglected interest earned on 1st years money in 2nd year: £3000 x 0.05 = £150

Total: £495 (£540 if you allow for the 2nd year account to run its course)]

Lloyds:
Interest earned in 1st year: £250 x [(12 + 1) x (12 / 2)] / 12 x 0.08 = £130
Interest earned in 2nd year: £130 + £3000 x 0.08 = £380
Total: £510

* Assumes Premier account is closed and reapplied for after 3 months (the account therefore runs for 9 months in the second year). Also assumes regular saver is still available at that time.

masonic

Jake'sGran wrote:

Just imagine having to move money from a simple savings account paying 5%, taking 3-4 days for that to happen to a current account paying 1.49% and then.... Its not for me. A&L can keep it. No wonder they give £50 to people who tell a friend and the friend gets £50 too.

Loss of interest at 5% APR through a 4 day transfer: 0.053%
Gain in interest by using the 12% regular saver: (12% x 6.5 + 5% x 5.5) / 12 - 5% = 3.79%

Overall gain: 3.74%

If you don't want the hassle, then fine, but it's a lucrative way of boosting your interest if you can be bothered to open the account and set up 2 standing orders.

hot_chick_2

All this proves yet again is you can't trust most bank staff because they don't have a clue of their products or what they are talking about when it comes to financial matters.

If you take out a monthly saver at 7% it pays 7% on the money you have paid into it, for the length of time it is actually in the account.

The money is gradually fed into this account so if you have a lump sum keep this in an high interest account while feeding the monthly saver to get the best interest over the year.

Jake'sGran

hot_chick wrote:

All this proves yet again is you can't trust most bank staff because they don't have a clue of their products or what they are talking about when it comes to financial matters.

If you take out a monthly saver at 7% it pays 7% on the money you have paid into it, for the length of time it is actually in the account.

The money is gradually fed into this account so if you have a lump sum keep this in an high interest account while feeding the monthly saver to get the best interest over the year.

I was determined not to comment any further on these monthly savers as I have decided I can do without having to run all these different accounts in tandem. But, Hot chick, yours is the simplest explanation I have seen and will benefit others who may not have realised that simple fact i.e. that the money in the monthly saver earns interest only for the time it is in there. BUT, with the A&L monthly saver you have to feed it from a new current account of their's. You cannot feed it from an account you have elsewhere which is earning 5%.

masonic

Jake'sGran wrote:

You cannot feed it from an account you have elsewhere which is earning 5%.

Yes you can. You just need to route it via your A&L current account. It will just take 1 day longer for the money to reach the regular saver than if you were able to transfer it directly.

regularsaver1

Blue_Lou wrote:

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.

The PFA / Personal financial adviser would only get commision if they would sell something else. Sounds like this did not happen.

What they say to the staff in the Halifax branches is that if anyone wants to do regular savings then pass them to PFA - who are the only ones that can give advice. they can give some different regular savings products - but there would be an element of risk and they are designed to not really access for minimum of 5 years