Santander Current Account - Interest Calculation

maurice28

Hopefully someone can help explain something to an idiot like me! I’m looking into opening a joint current account with my girlfriend, and have looked at the Santander Preferred In Credit Current Account. The bit that is attracting me is the 5% interest on balances up to £2500 for the first year. However, can someone shed some light on how this works in practice?

The Santander T&Cs say that interest is calculated daily, and added to the account on the second day of the following month. So, if say, we put £1200 into the account on the 20th of each month, and this then depletes steadily throughout the month, as bills are paid, on what amount is the interest calculated? Is it just the final balance on the cut off day for the month (say, the last day of the month perhaps?) Or, is it some other complicated formula? With a 5% interest rate, what kind of interest payment could we expect on paying in £1200 a month?

Sorry if this is a really stupid question!

rb10

It is calculated daily. This means that they take the balance at the end of each day, and multiply it by (5%/365). They then add up all the amounts for each day, and pay it once a month.

So if your account had a zero balance from the 1st to the 19th, and then on the 20th you paid in £1200, you'd get 10 days' worth of interest on £1200 (which at 5% is around £1.64 before tax).

The simplest way of working it out is to think of what your average balance for the month might be, multiply this by 0.05 and divide by 12. This gives you (approximately) the interest before tax.

If your average balance is likely to be less than £1500, then the Halifax Reward account is likely to pay you more. For average balances of between £1500 and £2500, Santander is the more profitable option.

R34GTT

Edited to remove my duplication of what the above poster already put.
(Too slow at posting lol).