First Direct Explanation

Cpu2007

Hello

I came across the article regarding First Direct offering £125 to people who switch from their current account. (link below)
http://www.moneysavingexpert.com/latesttip/

However the articles states that santander beats FD on this and I'm not sure how.

In the article in mentions 6%, does that mean that I'll be getting that IR on my FD current account? if so, then isn't this better then santander 3%? or am I missing something?

Reaper

No, the 6% refers to a completely different regular savings account, but one that First Direct will only let you open if you have a current account with them. Regular savers are very limited in what they let you do so don't let that influence you unless it is something you need.

As far as the bank accounts go FD will not pay you interest but will give you a big joining bonus, whereas Santander will pay you interest (but note there are fees on that account too).

Cpu2007

I have noticed that there's a regular saving account that gives 6%
I've heard many good things about FD and santander and these are the ones I might be choosing from.

I have estimated that in cashback I could get around £100 but this could be more or less, however the FD bank account gives £125 which isn't bad at all.

The question is, how does their regular saving account works? is the 6% an interest given on the savings that I have in their saving account? will 20% be capped off the profit for full time worker then right?
if so, even after taking 20% from the profit, the return seems to be better than what other accounts offer(even isa) - of course the catch here is that I cannot save more than £300 x month but on a long term this could beat many saving and isa accounts right?

Sensory

Cpu2007 wrote: »

The question is, how does their regular saving account works? is the 6% an interest given on the savings that I have in their saving account? will 20% be capped off the profit for full time worker then right?
if so, even after taking 20% from the profit, the return seems to be better than what other accounts offer(even isa) - of course the catch here is that I cannot save more than £300 x month but on a long term this could beat many saving and isa accounts right?

Interest is calculated daily (so yes, whatever's in the account) and is paid on the anniversary of account opening. After 12 months the account will cease to be a Regular Saver. The maximum amount of gross interest you can earn is approximately £117, which is equivalent to 3.25%. After basic rate tax, net interest would be roughly £93.60, equivalent to 2.6%. Only a select few of conditional ISAs can beat 2.6%.

saintalan

You should look at this as 2 separate issues first.

The cash-back for opening these accounts.

With regards interest it would be useful to have both because you can earn interest up to 3% on Santander 123 current account which you can use to drip-feed the FD 6% regular saver.

Read this MSE article on Regular Savings and drip-feeding.

Cheers

Alan

Cpu2007

Sensory wrote: »

Interest is calculated daily (so yes, whatever's in the account) and is paid on the anniversary of account opening. After 12 months the account will cease to be a Regular Saver. The maximum amount of gross interest you can earn is approximately £117, which is equivalent to 3.25%. After basic rate tax, net interest would be roughly £93.60, equivalent to 2.6%. Only a select few of conditional ISAs can beat 2.6%.

how does it drop from 6% to 3.25?

Cpu2007

saintalan wrote: »

You should look at this as 2 separate issues first.

The cash-back for opening these accounts.

With regards interest it would be useful to have both because you can earn interest up to 3% on Santander 123 current account which you can use to drip-feed the FD 6% regular saver.

Read this MSE article on Regular Savings and drip-feeding.

Cheers

Alan

would you be able to clarify on this, I know drip feeding is used to maximize the profit on the savings - so if one saving account offers less than another and I want to transfer everything to the highest regular saving account, I can drip feed to the latest (this is because there are limits on how much I can save each month)

however I don't understand the benefits of using both the 3% and 6% account? can you provide me a scenario in which this could benefit?

FatherAbraham

Reaper wrote: »

As far as the bank accounts go FD will not pay you interest ...

Actually, I have a £250, 0% overdraft on my first direct current account, so I suppose that does, sort of, pay me interest (insofar as it means I can keep a bit more money elsewhere on deposit, earning interest).

Warmest regards,
FA

Sensory

Cpu2007 wrote: »

how does it drop from 6% to 3.25?

£117 is 3.25% of £3600.

Cpu2007 wrote: »

would you be able to clarify on this, I know drip feeding is used to maximize the profit on the savings - so if one saving account offers less than another and I want to transfer everything to the highest regular saving account, I can drip feed to the latest (this is because there are limits on how much I can save each month)

however I don't understand the benefits of using both the 3% and 6% account? can you provide me a scenario in which this could benefit?

The 3% account drip-feeds into the 6% account. If you had £3600 as a lump sum:

Month 1: £3300 (3%), £300 (6%)
Month 2: £3000, £600
Month 3: £2700, £900
...
Month 12: £0, £3600

saintalan

Cpu2007 wrote: »

would you be able to clarify on this, I know drip feeding is used to maximize the profit on the savings - so if one saving account offers less than another and I want to transfer everything to the highest regular saving account, I can drip feed to the latest (this is because there are limits on how much I can save each month)

however I don't understand the benefits of using both the 3% and 6% account? can you provide me a scenario in which this could benefit?

Sensory beat me to it, thanks.

Just to lob another idea in there are other options too.

Nottingham BS have a 4% Regular Saver ISA and if you want delve in to Norwich & Peterborough BS which have 2 @5% & 2@4%. No current a/c needed.

So if you have enough in your Santander 123 you can have it drip feed them all!

Its an endless quest:)

innovate

Cpu2007 wrote: »

how does it drop from 6% to 3.25?

It does not drop at all, the AER is 6% and that's the end of it.

People keep making the mistake of mixing up a lump sum payment that would be in the account for a full 12 months, and monthly payments where only the first payment is in the account for 12 months. The next one would be 11 mths, and so on until the 12th payment that would just be in there for 1 month.

If they want to say that the return on saving 12 monthly instalments at 6% AER would be the same as investing that amount in one upfront lump sum at 3.25% AER, they should say so. But to most people looking for a Regular Saver, saving an upfront lump sum would be an academic consideration.