Regular savers explained

Al_Mac

This could become a sticky, I will refine it as I understand more

But please read the site article HERE first

A regular saver is where you fund a savings account with an amount each month (hence the name regular). Missing a months investment will more than likely invalidate the account, resulting in a drastic reduction in the interest rate:eek:

This amount has a limit, the usual limit is £250 maximum.

The account usually lasts for 12 months, some are longer, so don't forget to start a new one at the end of the term

One T&C tends to be that you have your pay paid into a current account with them, the regular saver is fed from this.

The interest rate is usually above average.

This is how the interest is calculated

Month 1 gets twelve twelfths of the annual interest

Month 2 gets eleven twelfths of the annual interest

Month 3 gets ten twelfths

Month 4 gets nine twelfths

Month 5 gets eight twelfths

Month 6 gets seven twelfths

Month 7 gets six twelfths

Month 8 gets five twelfths

Month 9 gets four twelfths

Month 10 gets three twelfths

Month 11 gets two twelfths

Month 12 gets one twelfth.

Interest will be paid less basic rate tax, at the current rate, unless the account has been registered to have interest paid gross, form R85. You may be subject to further tax if you are a higher rate tax payer.

That's about it. Any questions, so this can be refined

tom188

My dog had an alliance and leicester regular saver account, paid in £250 per month and was expecting to get £300 interest but only got £130. Is this legal? This is such a con i cant believe that theyve done this im going to complain to the FSA...

Actually it has been a while since weve had a thread like this but good work Al Mac, lets hope it becomes a sticky.

Maybe you need to point out that you will have to pay tax on the interest.

tom188

Oh and importantly, its twelfth not twelth.

tom188

Perhaps also you need a reminder that if you miss a payment you will quite often get paid a lower rate or have the account closed.

Ian_W

Some last longer than 12 months, Al - like LTSB which is 2yrs and YBS which isn't time limited but does have a max on how much you can have in it - but I can't find how much on their website ATM.

Not all require a current account [YBS again] but many of them do and the better payers often require it to be used as a main account [Barclays & A&L I think].

Jolly good idea though - your post I mean - thanked you for it.

tomstickland

Well, really, each month receives 1/12th of the gross interest rate , but in the first month there is only one payment in there and by the last month there are 12 payments in there.

Or you could say the first payment receives 12 interest payments at 1/12th of the rate whilst the second payment receives 11 interest payments at 1/12th of the annual rate etc. It all ends up with the same result.

A rule of thumb is that the total amount of interest paid is half the annual net rate. If you feed it from another account then the total interest earnt on the lump sum is roughly the average of the net rates from the feeder and monthly saver accounts.

Milarky

You're describing the essentials of a 'Fixed Rate/Fixed Term' regular saver - the ones mostly popular with the banks rather than building societies.

So the categories could be refined as:

Fixed Rate/Fixed Term - with added conditions (like associated current account and/or funding requirement/salary credit/restricted to 'level' or 'single' payments)

Variable rate/Open ended - popular with building societies

Variable rate/Fixed Term - offered by some building societies but less common I'd say

Then there's the old chestnut: 'is it worth it?' (because cash is drip fed so the amount of interest paid never seems to match the headline rate.) Since everyone has different circumstances, this could best be generally explained by specifying the average amount in the regular saver @ the differential rate [which depends on which account the person already holds]

So bascially, you'd have to say that at 12 equal payments the average number of months a payment (and therefore the final balance as a whole) sits in the regular saver is 6.5. But there are 12 months in the case of a 1 year product. However the savings will earn 'X%' in the existing account and 'Y%' in the regular saver. So for the algebraically minded the 'gain' beomes;

In £££s: (Y-X)% x 6.5 x (£payment)

eg (8% - 5.75%) x 6.5 X £250pcm = £36.56 gross

IN %: (Y-X)% x (6.5/12)

eg (8% - 5.75%) x (6.5/12) = +1.21% gross

[This ignores the time taken to move money into the regular saver but that does not require discussing in my view since all payments between banks will speed up in November and some regular savers use internal transfers already]

And this could be simplified (without examples) justby saying that for each '1%' of difference in the rates you get 0.54% [6.5/12] on your total investments. So with a 3% differential it's + 1.62%. People can these assess the value of this for themselves.

Robert_Sterling

This could become a sticky, I will refine it as I understand more

A regular saver is where you fund a savings account with an amount each month (hence the name regular) Often it has to be the same amount each month. .

Missing a months investment will more than likely invalidate the account, resulting in a drastic reduction in the interest rate:eek:

This amount has a limit, the usual limit is £250 maximum. Coventry B S have one with an upper limit of £2,000 a month. Only for the older folk though.


The account usually lasts for at least 12 months, some are longer, so don't forget to start a new one at the end of the term

One T&C tends to be that you have your pay paid into a current account with them, the regular saver is fed from this. This may be the case with banks and is rarely the case with our mutual friends the Building Societies

The interest rate is usually above average.

This is how the interest is calculated

Month 1 gets twelve twelfths of the annual interest

Month 2 gets eleven twelfths of the annual interest

Month 3 gets ten twelfths

Month 4 gets nine twelfths

Month 5 gets eight twelfths

Month 6 gets seven twelfths

Month 7 gets six twelfths

Month 8 gets five twelfths

Month 9 gets four twelfths

Month 10 gets three twelfths

Month 11 gets two twelfths

Month 12 gets one twelfth.

Interest will be paid less basic rate tax, at the current rate, unless the account has been registered to have interest paid gross, form R85. You may be subject to further tax if you are a higher rate tax payer.

That's about it. Any questions, so this can be refined

Just a few colourful additions.

lipidicman

Nice post by the OP for the novices

...and some nice details from Milarky. I remember questioning his x6.5 average balance calculation once (eg 1625 in a Halifax RS), then realising he had it right!

For me I save as I earn. So as I dont have the money before I make each deposit I get the full 'boost' by putting it in a 10% account rather than a 5.8% account. By having a few I can save as much as I want at 7%+

Long Live the RS

Beate

So basically if you put in £250 a month for 12 months at a rate of 8% AER, you can roughly say you get 4% of the end amount of £3,000, which is £120 (minus tax). Which is why it is always much better to pack lump sums into savings accounts which pay more than that so you get say 5.25% per year on a £3,000 lump sum.
Right?

lipidicman

Yeah, but no-one is going to keep that lump sum in their wallet and bung £250 a month into the RS. They will put the money in the normal saver and move amounts to the regular saver. Eg using a 5.75% account and a 8% saver they can achieve around 7% on that £3k (as per the calculations from Milarky above)