Am I misunderstanding interest rates on regular saver?

masonic

Afahmaep wrote:

Please use spellcheck.

Perhaps he put that typo in there deliberately so that you would have something to say. Besides, Principal is spelt correctly.

[Deleted User]

masonic wrote:

Besides, Principal is spelt correctly.

But not the right word, in the circumstances.

masonic

Deleted_User wrote:

But not the right word, in the circumstances.

Sure, but spellcheck doesn't know that.

cerebros

Have also now had a look at some of the sticky's on calculating interest and am even more confused than when I started this thread

masonic

cerebros wrote:

Have also now had a look at some of the sticky's on calculating interest and am even more confused than when I started this thread

So what is it that you don't understand?

RayWolfe

You need to read the threads AND think about it too!
250 x 12.5% for 12 months
250 x 12.5% for 11 months
250 x 12.5% for 10 months
and so on
250 x 12.5% for 1 month

All equals about £1,500 at 12.5% for 12 months
or £3,000 at 6.25% for 12 months.

At no time do you have £3K in the bank for 12 months so why would you expect interest on 3K for 12 months?

david78

Here's another way of looking at it (just to make people more confused).

Imagine you have two accounts (A and paying the same interest rate. Lets say this is 7% gross (5.6% net). You have £3000 in account A and £0 in account B. Over the year you make monthly deductions of £250 from account A and put them in account B.

At all times you have £3000 overall earning interest at the same rate. (Ignore the time for transfers/clearance etc). At the end of the year you would expect interest of 5.6% X £3000 = £168. But you would also expect each account to earn the same interest. Each contained on average £1500 for the year. So you would expect £84 interest to be credited to account A, and £84 interest to be credited to account B.

BTman

You only have £3000 in there for 1 month !!
You only have £250 in there for a full year...

cerebros

RayWolfe wrote:

At no time do you have £3K in the bank for 12 months so why would you expect interest on 3K for 12 months?

Becuase, having never really looked into savings before (my only proper savings account was something that was set up years ago that I've just been paying into regularly out of habit - I've only just today closed it and whacked £3k of what was in there into my first ISA), and having never been taught about how interest is paid on longer term savings like this at school (when it would have been most useful to know this stuff before I started earning money...), I was working under the assumption the the high interest rate was paid on the final balance (since that's when interest was added) and was the enticement for getting you to use Barclays (or whoever) - since they require you to pay your salary (of £1k+) into one of their current accounts (obviosuly varies with other providers), which presumably don't pay that good a rate, they tie your savings into that savings account for 12 months, and, they presumably hope, you forget to move to accounts paying better rates once the special rate runs out.

I had read through some of the articles in the main Savings & Investments section on this site, but I don't think I'd come across the bit about AER. I think I'm now (slowly) beginning to understand how to work the interest out (have bunged some figures into Excel and was able to reproduce the Barclays figure so pretty certain I'm on the right track) but it's more complex than I was expecting in terms of figuring out exactly what return I would get - i.e. I can't just say to myself "Well if I put £250 a month away that's £3k for a year, then muliply it by the interest rate and that's what I'll get".

[Deleted User]

cerebros wrote:

I was working under the assumption the the high interest rate was paid on the final balance (since that's when interest was added)

It would be, if you deposited £3000 on day 1, but of course you could only deposit £250 on day 1 in this type of account, so the interest is staggered. Although the interest is paid at the end of term, it is calculated as you go along.

That is not to say that there are not other types of account where you could deposit £3000 on day 1, funds permitting. However the rate of interest applicable to those will be accordingly lower. The banks aren't silly, you know.