New IFA's advice: don't understand the math

Blue_Parrot

My new IFA has recommended that I put a spare £200/month into an HSBC account paying 8% AER/gross and says that "after one year that will yield £2,504.42 after tax and charges (i.e., a £104.42 gain) which equates to 4.35%."

The HSBC site does indeed offer this account http://www.hsbc.co.uk/1/2/personal/savings/regular-saver but the conditions are that you must already have, or open, an Advance* account which has charges thus: £6 x 3 months + £12.95 x 9 months = £134.85.

8% of £2400 deposited would be £192. Deduct tax @ 20% of £38.40 = £153.60. Deduct charges of £134.85 = £18.75.

Whose calculations are correct? Mine at a £18.75 gain in one year, or hers at £104.42?



*none of the other qualifying accounts pertain. The 'benefits' to be had from this Advance account are of no interest.

Lokolo

You have said that 8% of £2400 is £192, which would be correct if the whole £2400 had been in their the whole year. But it hasn't, you've been depositing £200 a month, so the average amount over the year is just over £1200, which means you will get £104.42 interest after tax. (The IFA is correct in this respect, it even has an example of the webpage you linked).

However the IFA hasn't taken into consideration the cost of the advance account, so you would make a loss overall, but you get other benefits with the HSBC Advance account so depends if you would make use of these or nots.

And finally - not sure why you are using an IFA for looking up savings products! They are more geared towards long term financial planning.

Blue_Parrot

Lokolo wrote: »

You have said that 8% of £2400 is £192, which would be correct if the whole £2400 had been in their the whole year. But it hasn't, you've been depositing £200 a month, so the average amount over the year is just over £1200, which means you will get £104.42 interest after tax. (The IFA is correct in this respect, it even has an example of the webpage you linked).

However the IFA hasn't taken into consideration the cost of the advance account, so you would make a loss overall, but you get other benefits with the HSBC Advance account so depends if you would make use of these or nots.

And finally - not sure why you are using an IFA for looking up savings products! They are more geared towards long term financial planning.

Thanks for your reply, which is exactly my first reaction (that I would make a loss). In disbelief that an independent financial advisor would recommend anything to a client which would make a loss, I got my calculator out to see if I could have been wrong about that.

(I'm not using an IFA to advise on savings products: that was an add-on at the end of a meeting about many other subjects like pensions and ISAs.)

This same IFA recommended that an elderly relative invest some of his/her money in an ISA. I remarked that non-UK residents are not eligible for ISAs. The IFA knew that the elderly relative is resident outside of the UK.

Not that I'm being critical of the new IFA : just surprised at the quality of advice so far.............

pqrdef

Lokolo wrote: »

You've been depositing £200 a month, so the average amount over the year is just over £1200, which means you will get £104.42 interest after tax.

Before tax.

You have to get the account through First Direct to avoid the fees. (You can also pick up a £100 joining bonus, or maybe more if there's a deal on a comparison site.)

tagq2

Is this like FD where £1 in one of their low-interest savings accounts will cause current account fees to be waived?

Aegis

Blue_Parrot wrote: »

My new IFA has recommended that I put a spare £200/month into an HSBC account paying 8% AER/gross and says that "after one year that will yield £2,504.42 after tax and charges (i.e., a £104.42 gain) which equates to 4.35%."

The HSBC site does indeed offer this account http://www.hsbc.co.uk/1/2/personal/savings/regular-saver but the conditions are that you must already have, or open, an Advance* account which has charges thus: £6 x 3 months + £12.95 x 9 months = £134.85.

8% of £2400 deposited would be £192. Deduct tax @ 20% of £38.40 = £153.60. Deduct charges of £134.85 = £18.75.

Whose calculations are correct? Mine at a £18.75 gain in one year, or hers at £104.42?



*none of the other qualifying accounts pertain. The 'benefits' to be had from this Advance account are of no interest.

Does your IFA work for HSBC, by any chance? It strikes me as odd that a genuinely independent IFA would recommend upgrading your bank account to a premium version to get a benefit which would result in less return than simply putting money into a decent instant access account.

Your calculations are definitely correct, you need to factor in product charges when evaluating the returns of a cash account.

AmTheMan87

Hi, that does seem unusual for an IFA to reccomend a general savings product rather than any investments.

The Regular Saver does pay 8% at present (usually higher rates in the "January Sale") but is compund interest, you only ever the full 8% on the first months deposit (max £250) so based on the interest earned and the Advance Account fee's, makes no sense really...

I am aware that you saind you are not a UK resident so I do not know why (if ur a HSBC cusotmer), they have offered the option of offshore investments (or savings at least)... may be worth the question? Again, you may initially pay a fee to open an offshore a/c (£0 premier, £50 advance, £100 all other custs), thats a one-off fee though and will be classed as an account opening fee/admin charge.

dunstonh

Does your IFA work for HSBC, by any chance? It strikes me as odd that a genuinely independent IFA would recommend upgrading your bank account to a premium version to get a benefit which would result in less return than simply putting money into a decent instant access account.

You are right. It isn't something an IFA would normally look at and with it being HSBC, there is probably something being done here with bank clerk hat on rather than IFA hat on.

opinions4u

the conditions are that you must already have, or open, an Advance* account which has charges thus: £6 x 3 months + £12.95 x 9 months = £134.85.

Ignore the 8% account for a moment. Does that £135 a year buy you a set of goodies that are good value, good quality and replace more expensive things that you would have bought elsewhere?

If not, forget the whole idea.

As for an IFA, which is going to be most independent? One working for a bank? Think about it.

Blue_Parrot

Thank you all for the replies. There are many misunderstandings here although I thought I had explained clearly enough.

I do not have an HSBC bank account. I have no intention of swapping my current account to HSBC or anywhere else.

The IFA suggested this as a place to put a spare £200/month as stated in post 1.

The IFA does not work for that or any bank

I am not the non-UK resident: that was an elderly relative as stated in post 3

The add-ons in the HSBC Advance account are of no interest to me as stated in post 1.
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Additionally, the IFA was shocked to hear that this spare money is going into a new Lloyds savings account, because Lloyds have set aside £3.2 billion for PPI claims. Since I am not a PPI claimer this is irrelevant to me; and all the high street banks have had to do the same. Barclays £1 billion; Natwest £850 million; HSBC £268 million.

IMO, that Lloyds have had to set aside the most does not make them a rubbish place to put some spare money which I took out of a Santander account. In any case the local branch is on the list of those being sold, so it won't be Lloyds for much longer.

Lokolo

Have you used up all your ISA allowances?