Lloyds TSB's 8% vs. Icesave's 5.45%

tom188

No
The LTSB term is for 2 years from account opening.
The rate of interest is 8% p.a, however the amount of interest is based on how long each payment is in the account.
Eg. First payment + Intial deposit receive 24 months worth of interest.
Second payment receives 23
...
Last payment receives 1.

A confusion occurs when people do not realize that you should receive the interest based on how much youve put in. Eg if you make the maximum initial deposit to LTSB followed by the maximum every month you have £6500 in at the end of the term. Often people think they should receive 2 years of 8% on it - eg 6500*1.08*1.08=7581.60=£1000 interest. This is of course incorrect because not all the money has been in the account for the whole term. You receive a proportion, roughly £550.

Equally if you pay in £250 into a 10% saver for 12 months you would not get £300 interest on the £3000 paid in because the money has not all been in there for the whole period.

To maximise your interest you initially put your money in an account such as Icesave then drip feed into the regular saver every month.

Mc4ndy

I agree with tom now, was being a bit stupid before. Still Stupid is as stupid does and forest says. About £570

Mc4ndy

Don't read too much into the feedback though.. People are more inclined to post negative than positive (I mean those with a negative experience will post, those who had no problems won't and they are the majority)... I've opened one recently as did my GF and both went through without fault.. I phone em' and they answer the phone, all direct debits and standing orders transferred as expected. Overdraft setup as expected. Card and pin received quickly. Internet banking details received quickly. Maybe they have had problems with massive demand, but for me it went fine. I've switched business account over to A+L from Barclays due to free banking and better rates, and so far I cannot find fault.

drunknmunky

Many thanks for your input everyone, especially tom188 and Mc4ndy.

Tom188 - i've re-read your last post about 20 times and theres a small part I just cant get my head round. You wrote...

Equally if you pay in £250 into a 10% saver for 12 months you would not get £300 interest on the £3000 paid in because the money has not all been in there for the whole period.

...which is fair enough, but then how much interest would i earn? Please dont think i am lazy by asking you to help work this out, I just dont understand how to do the calculation.

If you have a moments spare could you just breakdown how much interest I would earn for the 1st 3 months for the example you gave above. If i can get the 1st 3 months, I can work the rest out from there

Your help is much appreciated.

YorkshireBoy

drunknmunky wrote:

but then how much interest would i earn? Please dont think i am lazy by asking you to help work this out, I just dont understand how to do the calculation.

Paying £250/month into a one year 10% regular saver means your final balance is £3,000. Because you start with nothing and end up with £3,000, you can say your 'average' balance throughout the year is half this, ie £1,500 (in practice though, your average balance will be slightly more than half because you have £3,000 in for a full month at the end). Your interest can be calculated approximately as [avg balance x % interest rate], therefore £1,500 x 10% = £150.

If you have a moments spare could you just breakdown how much interest I would earn for the 1st 3 months for the example you gave above. If i can get the 1st 3 months, I can work the rest out from there.

Assuming money hits the account on 1st of the month...

Jan......£250 x 10% / 365 x 31 days = £2.12 interest
Feb......£500 x 10% / 365 x 28 days = £3.84
Mar......£750 x 10% / 365 x 31 days = £6.37
.
.
.
.
Nov......£2750 x 10% / 365 x 30 days = £22.60
Dec......£3000 x 10% / 365 x 31 days = £25.48

Total Interest...................................£163.15

OMski

Thanks so much for this YorkshireBoy - I was just trying to work it out and couldn't get my head around it either

Just one question > how did you reach the result £163.15 - if I carry on the same formula it comes to £50.96 for two years. I maybe doing something silly

YorkshireBoy

OMski wrote:

...how did you reach the result £163.15

It's the sum of each of the 12 monthly interest figures (calculated daily, but paid annually).

OMski

Excellent thanks

So if I were to work out for the second year I would therefore do the following

Jan figure is worked out at £3000(from first year) + £163.15(interest from first year) + £250(monthly payment) = £3413.15

Jan......£3413.15 x 10% / 365 x 31 days = £28.99 interest
Feb......£3663.15 x 10% / 365 x 28 days = £28.10
Mar......£3913.15 x 10% / 365 x 31 days = £33.23
.
.
.
.
Nov......£5913.15 x 10% / 365 x 30 days = £48.60
Dec......£6163.15 x 10% / 365 x 31 days = £52.34

Total interest earned in the second year as £479.47

Therefore at the end of the two years you'd have £6163.15 + £479.47 = £6,642.62 (a total of £642.62 interest [£163.15 + £479.47])

Hope that is correct, I'm not sure to be honest.

Thanks again for your help

YorkshireBoy

OMski wrote:

So if I were to work out for the second year I would therefore do the following...

Two things to understand...

1. The example I (and the other poster) was using was based on 10% for a year. If you're using this method to work out the LTSB return, don't forget that the rate there is 8%.

2. I don't have the LTSB product (yet) so I'm not sure when the interest is paid, ie do you receive the benefit of compounding on the second years balance or do you receive the sum of 24 individual months' interest payments at the end of the offer? Someone else will have to answer that question.

tomstickland

If you start with all the money in account A at a% interest and move it each month so by the end all of the money is in account B at b% then the overall
"effective" rate of interest is the average of a & b (approximately, close enough for comparison).

So you move from 5.45% HiSave into 8% LTSB and you'll make around 6.7% interest on the lump sum.

Someone once wrote "no no no no no no! 8% is 8%" when I made this explanation previously.


If you start with zero and just put money in from pay then the average balance is half the final amount.
So you earn approx 4% of the final amount in interest.

All before tax.