Brad & Bing 10% Christmas Saver

MarkyMarkD

We have posts like this all the time.

People just need to understand, and accept, that a regular savings account which does pay 10% on the balance in the account on a daily basis, will not pay you 10% of the closing balance as interest.

Nor should it, and nor is it a con.

Such an account is still providing twice as good a rate of return on the funds in the account, whilst they are in the account as another savings account paying 5% on its balance.

If you expect to pay £1,200 over the course of a year, at £100 a month, into a regular savings account paying 10%, you will not get £120 of interest. If you think that you should, you don't understand simple mathematics. You will get 10% on the average balance in the account on a daily basis - which is £650 - i.e. £65 of interest.

The Bradford & Bingley account pays less than this as the term wasn't a full year.

But it still pays/paid a rate of 10% on the daily balance, as its promotional material correctly stated.

Debt_Free_Chick

Money_Cub wrote:

Can anyone remember if Martin recommended the Bradford & Bingley 10% Christmas Saver?

I ask because I've just cashed this in and in reality the rate is around 3%.

A friend who was an accountant and now a lawyer looked it over and its a combination of clever wording and interest payments.

I just wondered if anyone else had 'fallen' for this and whether or not our Martin was also duped.

Would be interested to hear your views/experience.

I've not seen the details but I suspect this was an account that paid an APR of 10%. In which case, you only get 10% on those payments that had been invested (saved) for a whole year. For any payments saved for less than one year, you get a daily rate of interest, effectively equivalent to 10%

So .... a deposit saved for 365 days would get interest at 10%. A deposit saved for 1 day would get 1/365 of 10%.

TBH, this is just the normal method of paying/calculating interest.

Have I misunderstood? ?

lipidicman

Nope,
but for 1 day you would get (1.10^(1/365))-1 which is slightly different from .1/365 ....... but not by much! However when compounding it matters!

The OP did not seem that interested in our opposing views anyway. I was called rude for showing the correct calculation. A simple misunderstanding and I may have deserved it but they haven't returned to thank anyone (either with the button or a simple 'thanks all' message)

DampProof

Yep, spot on....thats about what I got back... and your calculations are correct.
The 10% is only applied from the date of deposit.

lipidicman

Yeah, the 'average balance method' is slightly off. I usually do it iteratively in excel, but the difference is small (and it doesn't make a good post!). Other variations will occur because we all paid in on different days IIRC (I have so many Regular Savers!)

If you got around £55 is, then all is well.

MarkyMarkD

lipidicman wrote:

Nope,
but for 1 day you would get (1.10^(1/365))-1 which is slightly different from .1/365 ....... but not by much! However when compounding it matters!

The OP did not seem that interested in our opposing views anyway. I was called rude for showing the correct calculation. A simple misunderstanding and I may have deserved it but they haven't returned to thank anyone (either with the button or a simple 'thanks all' message)

You are wrong and Debt_Free_Chick is right ... on this sort of account the interest is paid annually and the daily rate is 10%/365, not your version which would only apply if interest is compounded daily (which doesn't happen on any savings account I know of) and to a lesser extent on those where interest is compounded monthly (and the formula would be slightly different then as well).

(Edited for clarity as to which lipidicman post I was correcting).

lipidicman

MMD, maybe (this refers to the (1.10^(1/365))-1 above NOT the calculation of £55 as the approximate return. So this is an interesting side point, NOT that my original reply to the OP is wrong!).

I was under the impression that the interest was calculated daily on the actual balance. Is interest not calculated and compounded daily to arrive at the AER? What I do is work out the notional daily rate assuming compounding and then apply it for the number of days at that balance. This method has always worked for me. However I would be happy to refine and simplify my calculations.

I'm looking forward to your reply as I have learnt a lot here in the past. I'm by no means an expert, but I do like to apply the maths I know to these everyday problems!

jamesd

lipidicman, I normally use the compounding formula for convenience as well but banks really do use the divide by 365 version normally. The difference isn't significant unless you're trying to precisely match the interest calculation a bank uses.

MarkyMarkD

As jamesd says, interest is calculated daily and accrued, but not credited to the account until the end of the year (or month, on some accounts).

So the rate/365 approach is the correct one to use.

Robert_Sterling

lipidicman wrote:

I try to be helpful here, most people appreciate it. If, say you were to thank me I would be only one thank you away from having three hundred!

Since you are so desperate for thanks that you actually ask for them I hve thanked you. Please do not thank me in return.