When is it worth chasing a rate?

Al_Mac

Lot of talk about leaving ING.

But for a quarter percent difference in rate, you only get about 20p per thousand per month, which is taxable.

So really, at what point do you think it is worth chasing?

Feel free to quote figures and tax band, if you wish

Dagobert

The tax band does not come into the equation.

As ING is operated via a linked account, it will take a minimum of 4 days to transfer the money via a current account to a new savings account.

For an 0.25% difference, the cost of moving the money would be recouped after 76 days. The gross gain for every £1000 would be £1.98.

Moving the money to a 5.45% account such as ICICI or ICESAVE, would be recouped after 27 days and gain £6.48 gross per £1000.

The above assumes that money is transferred on Monday and arrives in the new account on Friday.

Stonk

Personally, I chase increases of 0.25% and greater. It's my experience that an account which is that far off the market is likely to remain uncompetitive for ever, so in the long run it is worth taking the 76 day hit. At 0.7%, ING to IceSave is a no-brainer.

I get 4% on up to £5K in my current account, so for me it's actually not quite as bad as 4 days' lost interest - I usually get 1 or 2 days' interest in the current account. If I'm moving £10K, I'll do it in two lots of £5K in consecutive weeks to take maximum advantage of this.

Obviously, only chase rates once you know they are stable. At the moment, several are unstable and may or may not change following the BoE decision.

If I had less money to move, it would require a greater differential in interest rate. There is a certain amount of fixed effort in administering an additional or replacement account. A 0.25% increase on a balance of £1K isn't worth my effort, whereas 0.25% on £35K is. Everyone will have their own feeling about where to draw that line.

Stonk

Al_Mac wrote:

If you pay tax, how not?

Over a long term, you will obviously do better with you money in a higher-rate account, even if it is only 0.01% higher. So the really relevant question is "how long will it take me to recoup the lost interest?" The answer to that question is independent of your tax band.

Dagobert

Al_Mac wrote:

Dagobert wrote:

The tax band does not come into the equation.

If you pay tax, how not?

The tax is just a percentage off the overall gain. But it does not alter the ratio of cost and gain, therefore has no impact on how many days it takes to recoup the cost.

Stonk

Al_Mac wrote:

That's my view as well.

How do Icesave ID&V you? Sending documents I think is a pain

They did me electronically and I didn't have to send any documents. Electronically always seems to work for me, but it's less likely to if you've moved address recently, or aren't on the electoral roll, or credit reference agencies don't know much about you, or if there's an P in the month. But at least they try the paperless route, which is more than some institutions.

ManAtHome

If more people did a bit of rate-chasing, even if you only end up breaking even, the banks would be less inclined to play the inertia card. As most of them were not too bothered about reducing rates "due to market conditions" when there was no change from the BoE, I'm not too bothered about moving my savings (similar market conditions) even when they hold off as long as possible, never mind the one(s?) who tell me they can't be a$$ed raising rates.

Stonk

When bank transfers happen more quickly (next year?), there will be less inertia - at least, from me.

The only thing preventing me from rate-chasing is the time it takes to recoup lost interest. It is painful that it takes so long to do so. During that loss-making period, there is a risk that destination account may become uncompetitive, meaning that (in hindsight) I made the wrong decision. That's why I have my limit at 0.25%. Sometimes I will lose out, but on the whole I gain. Having a lower limit would increase the risk of overall loss.

It's especially painful when institutions force you to withdraw by cheque. I've recently closed my Derbyshire Regular Savers because at 5.00% they were sufficiently off-market (especially for an account with ties). They won't do BACS, and with £27K in 2 accounts it wasn't worth paying 2 CHAPS fees. Factoring in postage and cheque clearing time, I've had to stomach the loss of approximately 10 days' interest on the full amount. This will take a loooooong time to recover. Nevertheless, I believe the destination's rate advantage will make it worthwhile in the long term. But boy does it hurt seeing £14K, uncleared and unmovable, in my current account - that is so not me.

derrick

Stonk,

I understand the Derbyshire will do a "counter cheque" and send it direct to the institution you want it to go to, therefore reducing the time it takes to start earning interest again.

Milarky

Dagobert,

There are some ways to quicken to just two days:

- having a current account with any linked savings account that pays at least the ING rate (of 4.75). The money is withdrawn (2 days) and can be internally transferred into the saver account instantly upon arrival. Thereafter it should become possible to deposit into an external saver at a still higher rate provided the transfer is by direct debit (so, no further lost days) The remaining issue is the size of the transfer - it has to be within your overdraft limit or (ouch!) you get bank charges. But in principle the 2 days only need be lost on the first leg

Stonk,

- absolutely agree about next November's upgrade to the clearing system: it will take all the sweat out. I was going to say re. the Derbyshire why not wait another year and hope they will move up with the times? but I guess you could be waiting a very long time for that and, anyway, there would only be a 1 day improvement in cheque times by then. Some banks have more liberal policies re cheques (Lloyds up to £1000?) but no good to you if you have to take one big lump.

Given the time they (the bankers) have had to come at this cheque problem it is pretty poor indeed when the likes ofthe Derbyshire stick to cheques (presumably knowing that they still have the choice of how to pay their customers under any new banking code) In fact (going off topic) that 'improvement' in BACS next year is made toothless by not giving the customer the option of how to recieve that big payout from a savings institution: They (the OFT/CC etc) should have forced this issue frankly and they flunked it.