Any 8%+ Reguler Savers

ED

Mary wrote "Where do you keep the money over the weekend which will be used for the Standing Orders on the Monday? In a current account?"

My 'feeder' account earns 5.35% AER (5.22% gross) interest in the hybrid savings/current account offered by Coventry Building Society, named 'Coventry First'. So I leave it there, long-term. Every month I quickly adjust each Standing Order for the next deposit to arrive on or close to the 1st day of the next month.

s71hj wrote "re losing interest in transit: all my s/os go from my lloyds current account, lloyds policy being that they pay interest on all s/os and dds for the day they leave the account and another 2 days."

Thanks for reminding me – next March when my year with Coventry Bdg Society's guaranteed high rate runs out, possibly I may swap to using Lloyds 'Classic Plus' account to 'feed' many of the external regular, monthly savers. Interest for the Lloyds account is currently 4% AER (3.93% gross), for anyone interested.

Dagobert wrote "It would be naïve to assume that the clearing cycle will be shortened at no cost to us. The lost income will be recouped one way or another. It might cost us free banking."

I share Dagobert's anxiety that free banking may possibly be curtailed by some banks (but hopefully not by mutuals such as Coventry Building Society?). I wrote to a decision maker at HSBC months ago suggesting a compromise would perhaps be to continue offering free banking, but pay nil interest for 1 banking day (instead of the current 2 days – or 4 if a weekend is included).

dano_3

stphnstevey wrote:

Which HBOS account is this?

sorry i kinda work on the edge of the banking industry . . . so I know halifax and bank of scotland as hbos . . . the account is this one http://www.bankofscotlandhalifax.co.uk/directsavings/IASAReward.shtml

eg MSE's best saving current account

stphnstevey

Thanks. Can anybody beat this rate for a simple 'feeder' account?

shitefourbrains

Hey my first entry on these forums.. Now this is what I've gone and done.

I have been with Lloyds for the last few years as their student/graduate account have nice big overdrafts. Well I've paid all that off now and no longer have the overdraft facility. So when I saw their Regular Saving Account @ 8% (fixed for 2 years) I went with it instead of a Mini Cash ISA.

My mind thought behind the decision is...

As I don't currently have cash/savings to hand I may need immediate access. Searching through Cash ISAs on offer with internet and immediate access the best rates I can find are around 5.15%.

Now I know the Lloyds 8% is taxed but that still weighs in at around 6.4% net. (correct me if I'm wrong)

I've opened the Account with £200 and hopefully will be saving £100 a month (if strapped for cash £50 minimum).

If I've done wrong point me in the direction of the more prosperous path.

mary

ED wrote:

Mary wrote "Where do you keep the money over the weekend which will be used for the Standing Orders on the Monday? In a current account?"

My 'feeder' account earns 5.35% AER (5.22% gross) interest in the hybrid savings/current account offered by Coventry Building Society, named 'Coventry First'. So I leave it there, long-term. Every month I quickly adjust each Standing Order for the next deposit to arrive on or close to the 1st day of the next month.
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I have only opened the Coventry First account fairly recently simply to dump my pot of gold into. All my STOs come out of my Lloyds Current account. I use up my income first and the remainder I had been transferring from Coventry to Lloyds to go out to the existing STOS to regular savers. So do you suggest it is safe to simply set up new regular savers directly from Coventry and therefore avoid having to route through Lloyds completely, as that would shorten the time in transit? Do the regular savers, mind whether the provider is changed or is as I suspect, all they care about is that you make a regular payment once a month to them?

How long generally do the STOs take from Coventry to the various regular saver accounts?

Kazza242

stphnstevey wrote:

However,if the SINGLE YEAR monthly saver rate is substantially higher (eg. 10%) than the LONG TERM monthly saver rate (eg. 6.5%), then the SINGLE YEAR monthly saver, even if you do need to reinvest the money each year, does out perform the LONG TERM monthly saver.

By factoring in a 10% interest-paying account, you've changed the scenario from that which was used to make the comparison earlier in this thread. Which was a comparison between a short term 8% regular saver to a long term 6.5% regular saver.

I had a look at the original scenario this evening and made some calculations based on:
- The interest earned for years 1, 2 and 3.

- I looked at the totals accrued by using a 6.5% long term regular saver and compared it to that accrued by a short term 8% regular saver that runs for 12 months.

- After the 12 months, the balance in the 8% regular saver was swept out and started again each year.

- The swept out balance was placed in an easy access account paying 5%.

- The saver is a basic-rate taxpayer.

- In Year 1, I ignored the interest that would be accrued by a (easy access) feeder account, as the amount of interest earned in this account would be the same, regardless of the regular saver rate. Therefore, in year 1, it doesn't help explain which regular saver earns more interest.

- From Year 2 onwards, the easy access account interest was factored in.

- I assumed that the saver was starting off with capital of £6K in year 1, £12K in year 2 and then £18K in year 3.

- The saver was paying into one 8% regular saver per year.

- The saver was feeding in £500 per month into the regular saver.

In Year 1, the 8% regular saver (£208) made £39 more interest than the 6.5% regular saver (£169).
Winner in Year 1: 8% RS.

In Year 2, 8% RS balance is swept into 5% account and a fresh £6K is fed into another 8% RS. While 6.5% RS continues and £500 pm is fed in from a 5% account. 6.5% RS makes more interest in year 2, than 8% RS.
Winner in Year 2: 6.5% RS.

In Year 3, Y1 & Y2 8% RS balance (+ int.) is swept into 5% account and a fresh £6K is fed into another 8% RS. While 6.5% RS continues with £500 pm fed in from a 5% account. Like Year 2, 6.5% RS makes more interest in year 3, than the 8% RS.
Winner in Year 3: 6.5% RS (as it makes approx. £109 more interest than the 8% short term RS).

stphnstevey wrote:

In summary, building up a pot in a LONG TERM monthly saver is better than current normal savings accounts.

I agree with this view.

stphnstevey wrote:

However, still make use of good rates on the SHORT TERM monthly savers to gain that bit more interest above the LONG TERM monthly savers.

According to my calculations, short term monthly savers (at e.g. 8%) only accrue more interest than a 6.5% long-term monthly saver in Year 1. From Year 2 onwards, the long term 6.5% monthly saver will make more interest than the 8% RS. In fact, the difference in interest increases each year in favour of the 6.5% RS, because:
i) A lump sum is allowed to build up which then earns a high rate of interest for longer.
ii) It also benefits from compounding, as the capital and the interest (accrued each year) earn 6.5%.

To take the maximum benefit from regular savings accounts, I use plenty of high interest short-term regular savers AND I also use long-term regular savers, so the bulk of my money is always earning the highest possible rate of interest.:D

Dagobert

mary wrote:

Do the regular savers, mind whether the provider is changed ...?

As I stated in [post=3040460]post #39[/post], I feed my regular savers from varying sources each month - lowest interest feeder account first.

In case you are still in doubt, mary: my regular savers are all maturing successfully.

mary wrote:

How long generally do the STOs take from Coventry to the various regular saver accounts?

As has been described in the [thread=114786]BACS Transfers[/thread], the transit time is determined by both the sending and the receiving bank. The BACS clearing takes 2 working days*. However, some banks hold on to the money for an extra day; some do so before passing the money from the sender through BACS, some do so before passing the money to the receipient.

The Coventry BS does not hold on to the money at either end. If the receiving bank does not hold on to it before crediting your regular saver account, then it will be there 2 days later.

As has been mentioned in post #5 of the [thread=114786]BACS Transfers[/thread], another consideration is whether the sending bank pays interest on the day of withdrawal and whether the receiving bank pays interest on the day of receipt. Some banks pay interest on the next calendar day, some on the next working day, in which case you would not want it to arrive on a Friday.




*if sent on Tuesday, arrives on Thursday

stphnstevey

Kazza242

Your not actually comparing like for like in your comparison. You state 'In Year 2, 8% RS balance is swept into 5% account and a fresh £6K is fed into another 8% RS'. You wouldn't do this!

In your example at the start of year 2 you have:

8% RS
6k 5% account
6k feeding into RS

6.5% RS
6K 6.5%
6k feeding into RS

To make a fair comparison in year 2 you would have to have:
2 x 6K feeding into 8% RS

I know it's unlikely (but not impossible) you will be able to obtain two 8% RS in the same year, but to make a fair comparison, you have to take this into account.

Also, in year two, the feeder interest rate is important as only 6k of the 6.5% RS will include this additional interest, where as both the 8% RS will include this additional interest.

In year three, you would need to compare 3x 8%RS.

masonic

stphnstevey wrote:

To make a fair comparison in year 2 you would have to have:
2 x 6K feeding into 8% RS
...
In year three, you would need to compare 3x 8%RS.

This can be easily dealt with by replacing 5% with 6.6% [= (6.5 x 8% + 5.5 x 5%)/12)] for the £3000 and £6000 lump sums in the 1-year scenario.

However, you also need to account for compounding in the multiple-year account. At 6.5%, compounding in the 2nd and 3rd years will effectively add another 0.65% and 0.42% on to the rates of the £3000 and £6000 lump sums respectively. The scales are still tipped into the favour of the long-term account.

Kazza242

stphnstevey wrote:

Kazza242

Your not actually comparing like for like in your comparison. You state 'In Year 2, 8% RS balance is swept into 5% account and a fresh £6K is fed into another 8% RS'. You wouldn't do this!

In your example at the start of year 2 you have:

8% RS
6k 5% account
6k feeding into RS

6.5% RS
6K 6.5%
6k feeding into RS

To make a fair comparison in year 2 you would have to have:
2 x 6K feeding into 8% RS

I know it's unlikely (but not impossible) you will be able to obtain two 8% RS in the same year, but to make a fair comparison, you have to take this into account.

Also, in year two, the feeder interest rate is important as only 6k of the 6.5% RS will include this additional interest, where as both the 8% RS will include this additional interest.

In year three, you would need to compare 3x 8%RS.

I disagree with this. I put a lot of thought into comparing both types of regular savings accounts fairly last night. In my example, regarding the 6.5% account, in Year 2, you would be feeding in £6K capital. While for year 2, regarding the 8% account you would again be feeding in £6K capital.

In your example above, you seem to be saying that in Year 2 you would be feeding £6K capital into the 6.5% account and then you go on to compare it to feeding £12K capital (2x £6K) into an 8% account. How is that a fair comparison?

When comparing products, you do inevitably have to make a number of assumptions. Which is what I did in my earlier posting and I listed them before going into the calculations. I also think my assumptions were rather realistic based on the types and numbers of savings accounts available today. As you've said above, it is very unlikely that you would find two regular savings accounts paying 8% interest on 2 x £500 p.m. Also, by changing the amount of capital fed in during any of the years, you are not comparing like for like. That's why I stuck to what I thought could be achieved and based my assumptions and then my comparison on that.

In Year 1: 6.5% RS £6K fed in | 8% RS £6K fed in

Year 2: 6.5% RS £6K fed in | 8% RS £6K fed in

Year 3: 6.5% RS £6K fed in | 8% RS £6K fed in
etc...

When I look at this in simple terms it is easy to see why an account that continues beyond the usual 12 months is in most cases better than a short term account. Aside from the 8% rate and lump sum that can be deposited at the beginning, it is really the two year term, rather than the usual 1 year, that makes the Lloyds TSB monthly saver so attractive. As Martin Lewis states in his Regular Savings article when referring to the LTSB monthly saver:

"Fixed two-year life. Most similar accounts last just a year, meaning as money takes time to be fed into it, the amount you can save is paltry. The extra year here makes a huge difference".

Long term monthly savers, paying around 6.5% and up will make more interest than the short term 8% regular savers from Year 2 onwards. The difference in interest accrued, increases in favour of the long term RS each year, from year 2 onwards. This is because the money is allowed to build up in the long term RS. So you earn interest on:
a) The lump sum that has built up. AND
b) The money that is fed in during the year according to the amount of time it is in the account. AND
c) The interest. (From Year 2 onwards you'll earn interest on interest on interest..,..,..)

With a short term regular saver, you earn interest on:
Only b) applies*, you earn interest on "The money that is fed in during the year according to the amount of time it is in the account". Neither a) or c) would apply to a short term RS, this is why the long term RS wins.

*This applies to nearly all short term regular savers, except the Stroud & Swindon rs, as it pays interest in April not on the anniversary of account opening. Therefore, you can earn a bit of interest on your interest, so c) would partly apply here.

I use both short term regular savers and long term regular savers. For me, in the long term, the latter does shade it, because of the above reasons. Also, although it doesn't bother me, for some people, applying for and opening a new short term RS each year can be rather tedious. With long term RS', the money earns a lot of interest and is in the account longer, so one doesn't need to open, look for, or more importantly hope that a new high interest short term RS account is launched each year in time to receive the previous year's RS matured funds.