Am I misunderstanding interest rates on regular saver?

cerebros

Hi all,

I'm looking at taking advantage of Barclays Regular Saver which is a 12.5%. I already have a current account with them (not used at the moment but i don't have any probs changing my salalry to go into that).

Obviosuly I'm trying to find any problems or gotchas before going with this one instead of the Alliance & Leicester Premier Regular Saver and was just reading the FAQ on Barclays website

Question 11 reads:
11. How much interest would I earn if I pay in £250 per month?
If you save the maximum £250 a month for the whole 12 months, you would get back £3,000, plus gross interest of around £200!
The exact amount of interest will depend on when in the month payments are made to the account

Surely that's wrong? If you pay in the maximum £3000 in the year, once the interest rate of 12.5% is paid you should have £3375 (3000 x 1.125), which is a gross interest of £375. Once you take off tax at 20% for a standard rate payer you should have earned £300 (375 x 0.8 = £300). Am I missing something obvious here?

thanks

Madiba_2

The interest rate is a yearly interest rate. You dont get 1 years interest for a months investment.

also

gross = before tax

aleph_0

No, that is correct. You only earn the full 12.5% on money that is in the account for the full year, so £250, then you earn 11/12*12.5% on the next £250, and so on. So the last payment is only earning interest for a month (the interest is calculated based on the balance each day. The exact amount depends on the day of the month you pay it in, but the above is the best way to understand it.

I really think we should have a sticky about this (probably explained by someone better at explaining than me).

ctdctd

cerebros wrote:

Question 11 reads:
If you save the maximum £250 a month for the whole 12 months, you would get back £3,000, plus gross interest of around £200!

Surely that's wrong? If you pay in the maximum £3000 in the year, once the interest rate of 12.5% is paid you should have £3375 (3000 x 1.125), which is a gross interest of £375. Once you take off tax at 20% for a standard rate payer you should have earned £300 (375 x 0.8 = £300). Am I missing something obvious here?

thanks

You are missing the fact that you don't have £3000 in for a full year - the average amount earning 12.5% is just over £1500 - hence the £200 gross interest - see this earlier thread http://forums.moneysavingexpert.com/forumdisplay.html?f=17&page=7&order=desc

tom188

Yes

You really dont need to look very far to find the answer.
See here http://forums.moneysavingexpert.com/showthread.html?t=348671
from yesterday. Or do a search and find the thousands of other threads on the same subject.

Unfortunately you need to actually have the money in the account tho earn interest on it.

tom188

aleph_0 wrote:

I really think we should have a sticky about this (probably explained by someone better at explaining than me).

There probably is no point. Hardly any posters seem to bother to read the stickys, let alone bother to make the effort to actually search for the answer before asking a question.

cerebros

Well I search for posts on the Barclays Regular Saver and nothing came up.

Madiba_2

It would be easier if the banks just made these accounts pay the full % interest on the whole balance after a year, as if the balance was there for a year, that would put pay to these posts.

Or, they could scrap reggy savers altogether. I dont know if this would make me cry less, or more.

masonic

cerebros wrote:

Well I search for posts on the Barclays Regular Saver and nothing came up.

I think previous threads actually related to the A&L one, and the sticky to regular savers in general. Martin's written an article about regular savers here, which explains things quite well.

tom188

masonic wrote:

I think previous threads actually related to the A&L one, and the sticky to regular savers in general. Martin's written an article about regular savers here, which explains things quite well.

There have been threads on Barclays, Bradford and Bingley, Abbey, AL, Halifax... pretty much every product on the market all asking the same sort of thing.

The principal is the same regardless of the provider.

masonic

Madiba wrote:

It would be easier if the banks just made these accounts pay the full % interest on the whole balance after a year, as if the balance was there for a year, that would put pay to these posts.

But what about people who are using them for what they are intended for, viz, saving from their income? If they use a regular saver paying 10%, then they would get the same amount of interest as if they put it in a normal bank account paying 10%. If the banks did what you suggest, they might think they would get less and miss out by putting their money in an account paying them less interest.