Abbey Fixed Rate Monthly Saver 6.5%

ED

Folks, here's something to ponder!

Imagine you have a £6,000 lump sum to put into a savings a/c (you wish!) A couple of options may be :

(1) place £6,000 immediately in a 1-year bond @ 5.5% gross fixed rate with Northern Rock = £330 pre-tax interest after 12 months

(2) open with £500 an Abbey Fixed Rate Monthly Saver a/c @ 6.5% gross (say you do it on October 1st), plus £500 via Standing Order, on the 1st day of each of the next 11 months. Remember, meanwhile part of your money (initially 11/12th) will earn interest elsewhere.

I was shocked to work out that, at best, the Abbey option would gain under £20 in total (before tax is deducted) under best-case scenario. Do correct me if I've missed something in the following calculations…

Abbey's FRMS a/c would hold an average balance of £3,000 mid-way through the 12-month period @ 6.5% = £195 approx gross interest. In addition, lucky holders of cahoot's Introductory Rate Savings a/c (not me – grr!) may earn approx £155 on the remaining year-long average balance of £2,750 @ 5.65% (remember £500 was deposited on Day 1 into the Abbey FRMS a/c). That is assuming cahoot's rate doesn't drop to the guarantee of 5.5%. I believe all other instant access online a/c's pay a lower rate than cahoot. (Shame it's now closed to new applicants.)

£350 pre-tax interest after 12 months (£195 + £155) minus a minimum of 2 days per month of nil interest earned anywhere on £500 during transfer via SO = at least £1.70 lost in 11 months. (Actually, the nil-interest period doubles when a weekend intercepts SO transfer.)

However, if Banco Santander Central Hispano take-over Abbey, perhaps the cahoot division will be blended in with Britain's 6th largest bank, thus enabling the online transfer of £'s from cahoot's Introductory Rate Savings a/c to its cheque a/c to be followed next day by internal standing order into Abbey's Fixed Rate Monthly Saver (ie at worse only one day at reduced interest, no days at nil interest).

Maybe Abbey's new a/c is of greatest appeal for people wanting the discipline of not withdrawing £'s until the anniversary – perhaps whilst saving for a deposit on property.

On the other hand, many of us could benefit from the fixed rate nature of Abbey's new a/c, in the event of a Base Rate decrease during the coming 12-month period. (Anyone noticed there's virtually price-fixing going on with online a/c's all at around 5% gross, or the less attractive 5% AER, in the past fortnight?!)

Personally, I'm still prepared to pursue Abbey's a/c for a gain of about £18–odd beyond the Northern Rock bond option. One extra monthly SO commitment is manageable from my house-sale proceeds. I believe in Martin Lewis's Savings Fountain principle.

Loaded_Bachelor

Good points Ed and your calcs. are correct.

I think that if someone doesn't already have the £6000 and is feeding the Abbey account from income then the 6.5% obviously has to be the best rate around.

If you do have the £6000 in liquid funds (currently deposited anywhere but Cahoot or Abbey) and are looking for a home for it then feeding £500 per month into this Abbey account may have some fringe benefits.

1) If you have more than £35,000 of savings deposited with any one institution then depositing some with Abbey will reduce your exposure. (small investors compensation scheme only covers 90% of first £35,000 approx. deposited).

2) It never hurts to have a new account with a major player in the market as it may well automatically generate them sending you some other tasty offers, such as 0% balance transfer credit cards or cheap personal loan rates.

Daft_Monkey

It looks like I'm daft after all!!! ::)

Anyway, I paid a visit to an Abbey branch on Saturday and as ED mentioned earlier, I was told that they initially aimed to have the acount available for 6 weeks.However, due to high demand, the account might be withdrawn earlier than expected...
Therefore the sooner you apply the better.

I'll go back to counting and peeling my bananas from now on, as I've made a dogs dinner out of this 30 day loss of interest thing... :-[

ED

Daft_Monkey – thanks for your tip from Abbey that the new a/c may be withdrawn prematurely (ie less than 5 weeks from now). Re the 30 days loss of interest, the T+C are certainly a lot to take in, compared with those of competitors. Incidentally, folks, premature closure/withdrawal of the Northern Rock bond would cause 60 days loss of interest. Brownie points for Abbey…? (Have a banana on me!)

Loaded_Bachelor – agree with you about max of £35,000 invested per financial institution. Indeed the Abbey monthly a/c could reward handsomely customers feeding it from income, month-by-month.

(As this is an Abbey thread – beware scam email currently circulating pretending to be from "support" @ abbey.com)

Milarky

I was shocked to work out that, at best, the Abbey option would gain under £20 in total (before tax is deducted) under best-case scenario. Do correct me if I've missed something in the following calculations…

Abbey's FRMS a/c would hold an average balance of £3,000 mid-way through the 12-month period @ 6.5% = £195 approx gross interest. In addition, lucky holders of cahoot's Introductory Rate Savings a/c (not me – grr!) may earn approx £155 on the remaining year-long average balance of £2,750 @ 5.65% (remember £500 was deposited on Day 1 into the Abbey FRMS a/c)..

I think you are incorrect to say the 'feeder' account has to have an average balance of £2750, while the 'fed' account has an average balance of just £3000. In theory the SUM of the two balances will always be the same - £6000 - so the'average' of one will be £6000 minus the 'average' of the other.

Thus if the rates are 5.65% and 6.5% respectively, and ignoring nil-interest days for now, the 'fed' account will have 78/144ths of £6000 on average, and the 'feeder' account [from which 1/12th disappears on day 'one'] will have 66/144ths of £6000 average balance.

This equates to a 'blended' or average rate interest rate of (66 x 5.65% + 78 x 6.50%)/144 = 6.11% on the two account combined. So, the 'gain' over the same amount at 5.5% for 12 months is 0.61% gross or 0.4833% net, which is £29.30 on £6000.

If we assume an average of 4 days lost interest in practice, this is 4 days at 6.5% or about £4.27 gross, £3.42 net.

So I reckon the 'net' position is about £29.30 - £3.42 = £25.88 better off after tax

ED

Thanks, Milarky.

Milarky

Having got the account now opened with the initial deposit, Abbey have said in their letter the next payment has to be in by 21st of next month [i.e. November] So far so good.

They have returned the Standing Order form with the account number included. Now I sent this to them - with my bank details on - but it appears they want me to go to my own bank and set up payments myself [Not a problem, I'll just do it online anyway] Fingers crossed.

My query is whether anyone will make payments by BACS [possibly from different sources] rather than Standing Order? Will Abbey know [or care] where the money comes in from? 'Probably not to either' is the answer, I suspect. But any views welcomed.

Finally, they have not issued a pass book but will do so if I visit a local branch with ID. Any remarks on that one?

Thanks in advance

mary

I've opened the same account as you and likewise got a letter returning a copy of my Standing Order, as I, for once, forgot to fill in my account number.

As I had to go into Abbey anyway regarding my daughter's ISA, the woman behind the counter admitted that she had never had to deal with such an account before. Usually people come and open accounts in their local branch, not via the internet and then have to come in.

She didn't know what pass book to give me, and having checked with the Branch Manager, decided I should have a "Continuation" book. Continuation of what I don't know.

So I'm now the proud owner of a white pass book!

Then the Branch Manager asked me to show 2 items of ID, whereupon I produced the letter from Head Office asking me to provide ONE piece of ID. There wasn't really much she could say to that! However, we did agree that usually you are asked to provide two.

The conclusion was that they probably want to check that each application is a bona fide customer and not Mickey Mouse.

I checked whether I had to use the Standing Order route, but after checking in the golden book of rules, yes you do. I was hoping to avoid the longer route of Cahoot Savings to Lloyds current to Abbey. However I did ask if I could change the Standing Order to the 1st of the month, instead of the 21st as I had originally put, as recommended by different people on this site, so as to benefit from more interest. Correct? It was allowed.

So I went to my bank and got the Lloyds clerk to amend the form, and just initialled the change and asked her to
forward it. I commented that it would have been easier to do it at home on the internet, to which her chirpy reply was, having looked at this 50+ year old woman standing in front of her, "That depends if you know how to go about it." No doubt she thought I wouldn't even know how to switch on a PC!

When all's said and done, it's a good rate.

Good luck

booogle

Got my passbook today from my local branch, also a white book. Funnily enough the letter from HO said I had not submitted the SO form. They must be blind, it was included in the downloaded form, filled in correctly, and signed and all stapled together. Abbey said I have to got to my own bank to set up the SO now.

Robert_Sterling_3

Perhaps what they meant was that you had not sent the S.O. form to your bank.