MSE News: Santander to pay interest upfront but is it a good deal?

edited 3 November 2011 at 11:48AM in Savings & Investments
33 replies 5.4K views
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  • edited 3 November 2011 at 1:03AM
    nohnoh Forumite
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    edited 3 November 2011 at 1:03AM
    callum9999 wrote: »
    You're making no sense?

    As they understood it (and how I understand it - but am sceptical I've got it right), the only difference is you will have a bigger digit written down next to your name for 3 years.

    If you aren't allowed to make a withdrawal for 3 years, it makes zero difference when you are paid the interest within the period. It makes so little sense to me that I'm sure it must have been explained wrong?

    http://www.moneysavingexpert.com/news/banking/2011/11/santander-to-pay-savings-interest-upfront-but-is-it-a-good-deal
    Interest for the full three years is paid into the current account on the day after the term of the account begins which is either 1 December, 1 January or 1 February, depending on when you apply
    The interest is paid up front into your current account therefore you can spend the interest immediately rather than waiting 3 years to receive it. You are unable to withdraw the capital until the end of the term. It may appeal to some.
    It's not such a good deal as higher rates can be obtained elsewhere therefore the same outcome can be obtained by saving a smaller amount in a higher rate account and spending the difference.
  • what dont you understand man?
  • ViolaLassViolaLass Forumite
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    Thanks noh, I had missed the bit about the interest being paid into your current account, makes more sense now.
  • mcdalymcdaly Forumite
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    It makes sense to me. Get the interest upfront in time for christmas or better yet stick the interest you earn into their e-saver at 3.1% and compound it and you are quids in. On my calculations you will end up better off than the other 3 yr deals if you do this.
  • VT82VT82 Forumite
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    bigsev wrote: »
    What about inflation? The cash now will have more value than in 3 years. Shouldn't this be factored in as well?
    If you want to invest a lump sum for three years but have a bit of cash now, using Martin's example of just not depositing the full amount but depositing it into the best buy account is the right answer. Either way, you end up with a lump sum at the end and some cash now. It's just that doing it properly means you have a bigger lump sum at the end.

    Inflation doesn't change the working, as in both scenarios you have some money now and a lump sum at the end.

    Considering inflation is only relevant to decide whether or not you want to save in a three year bond. Once you have decided this, it is irrelevant to consider inflation further, you just need to maximise your return by picking the right account.

    I personally think the scheme is ridiculous, and you would have to be a numpty to fall for it. But I'm sure there are plenty of those around...
  • twokcctwokcc Forumite
    243 Posts
    As I've posted on another thread about late payment of interest fromSantander are desperate for cash.
    "IMHO
    This will happen more and more with Santander,they are desperate for cash. Just look at incentives being offered to open accounts and latest pay interest up front on long term investment. Thought it would be at least 6months before they went belly up but now could be 6weeks. I'd be moving any money I had with them out pronto and certainly not holding more than £85K in any account( so if your one of the lucky ones who sell a house just don't put the proceeds in a Santander account)"
    IMHO stay away from any investment from Santander,know we have £85k limit cover but goverments have change the rules before now and who knows what might happen with the current Greek/Eu crisis. If lot of banks went to the wall would the £85k be honoured by all governments? just not worth the risk for me.
  • oldvicaroldvicar Forumite
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    The only minor advantage I can see is in the tax planning possibilities, but the less than top rate paid somewhat spoils this.

    For example, a generous relative could invest for a 21st Birthday present for a kid who has been as school until say age 18 now and has plenty of tax allowance left this year, but will hopefully be a taxpayer by the time they are 21. The 'interest' paid upfront could be their 18th birthday present, and the rest locked away, untouchable, until hopefully they are a bit less likely to waste it?
  • richardwrichardw Forumite
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    You'd be getting Santander's excellent customer service reputation so it's a double win.
    Posts are not advice and must not be relied upon.
  • mixiemixie Forumite
    5 Posts
    mcdaly wrote: »
    It makes sense to me. Get the interest upfront in time for christmas or better yet stick the interest you earn into their e-saver at 3.1% and compound it and you are quids in. On my calculations you will end up better off than the other 3 yr deals if you do this.

    My thought too, you can take that interest and invest it elsewhere at a better rate immediately. Wouldn't that give you more than just investing the original capital elsewhere?
  • edited 3 November 2011 at 8:22PM
    ConsumeristConsumerist Forumite
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    edited 3 November 2011 at 8:22PM
    mixie wrote: »
    . . . you can take that interest and invest it elsewhere at a better rate immediately. Wouldn't that give you more than just investing the original capital elsewhere?
    Not quite.

    The £10,000 investment has still only earned 3.36% AER (£834 net interest for basic-rate taxpayers) compared with 4.3% AER (£1,077 net after 3 years) available elsewhere. So your £834 up-front interest would need to earn £243 net (i.e. £1,077 - £834) in three years to break even. I make that around 11.1% AER (gross) needed on the £834 to achieve that. I don't think it is very likely to consistently get that rate, or anything close, over the next three years without a considerably greater risk attached.

    Tax considerations aside, I would say this offer is more of a gimmick than anything of substance. But the uninformed will be taken in, so it's worth the bank's while to push it.

    Anyone care to check my numbers?
    >:)Warning: In the kingdom of the blind, the one-eyed man is king.
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