Return on 10% AER interest savings account

tipps_2

I've been paying into the Barclays Regular Saver (10% AER) for the past 6 months... I've been paying the maximum £250 per month and was hoping to get a nice big lump of interest on this £3000 investment at the end of the 12 month term... however, I've just been reading on the Barclays website that I should expect a paltry £163 in interest !!! I guess this is correct or it would have been picked up by someone else by now... but I still don't understand how this is calculated... can anyone please explain to me ? help !!!

jamesd

The average balance on a regular saver account for one year is 6.5 months times the monthly payment. At 250 a month that is an average balance of 1625. 10% of 1625 is 162.50. The amount looks correct.

If you were putting the money into a 5% savings account instead you'd get 81.25 in interest.

This average balance issue is why the Lloyds 8% for two years deal can be better than 10% or 12% for one year: the extra year gives a higher average balance on which the higher interest rate is being earned.

grumbler

jamesd wrote:

...This average balance issue is why the Lloyds 8% for two years deal can be better than 10% or 12% for one year...

I think it would be more correct to say: "8% for two years deal can be better than two consecutive 10%-12% 1-year deals."

P.S. Tipps, see also Martin's article Regular Saver :

Martin wrote:

Sadly Regular Saver accounts have often received negative publicity due to a flawed understanding of them, with comments like:

“Invest £3,000 for a year in a standard 5% savings account and you get £150 interest before tax, yet £3000 in a Regular Saver at 7% only earns you around £110 interest, so these accounts are poor.”

This is silly logic, as in practice you’re drip feeding the £250/month in, so the rest of your money is in another account (hopefully) earning high interest, while it waits to be fed in. Thus to compare fairly, add all the interest together. Do that and you’ll find you’re earning much more.

jamesd

Grumbler, true, it is.