My tax free interest seems too low

AdamAnd

Hi, apologies in advance if there is a lack of coherency. I did write a clearer post but this bleeping site asked me to log in when I was already logged in and I lost everything *"&&*%^&(*%$£%%

I have tax free interest on two savings accounts after filling on two R85 forms because I have no income.

Account 1) I got £2.22 in interest today when I have 10,775.96 at 1.25% gross pa. After one year I am expecting £134.70 in interest so £2.22 is very low after month no.1 - I was expecting £11.22 in interest.

Account 2) I got 13p in interest today on £250. This is more complex. The account is 3.20% gross pa. I can save a maximum of £250 per month for 1 year. So £3000 in total for one year I am expecting £96 in interest so 13p is again very low after month no.1 - I wasn't sure what to expect in interest.

Can someone much smarter and patient than me advise if the interest I got above is accurate and if so are my calculations of getting £134.70 and £96 from both accounts terribly wrong.

Thanks & regards. (copying everything above in case it gets lost and I can just paste it)

p00hsticks

AdamAnd wrote: »

Account 2) I got 13p in interest today on £250. This is more complex. The account is 3.20% gross pa. I can save a maximum of £250 per month for 1 year. So £3000 in total for one year I am expecting £96 in interest so 13p is again very low after month no.1 - I wasn't sure what to expect in interest.

You are wrong to expect £96 interest on this account - you would be right if you put £3000 in at the start of the year (3000 * 3.2% = £96), but you aren't, and you can't expect to earn a whole years interest on the total balance at the end of the year when for nearly all of the year the balance will have been lower. Interest will almost certainly be calculated on a daily basis on the amount you have deposited on the day. If you are putting in £250 a month then at the end of the year you will have had £250 saved for 12 months, another £250 saved for 11 months, another for 10 months and so on....

From the sound of it, you are getting interest paid monthly, so if you get this added into the account the interest will compound which makes it more complicated. If the interest rate you quoted is actually AER (Annual Equivalent Rate) rather than gross, then this assumes the interest is added to the balance each month.

I can't remember the exact formula to calculate the interest in such cases, but as a rough guide if you put in the same amount each month then by the end of the year you will get about half the interest you would have got if you put in the whole amount at the start of the year - so in this case, around £48.

If you started at £0 and then put £250 into the account on the 1st May, then I'd expect the interest paid on the 1st June (31 days later) to be £250 x 3.2 % x (31/365) which I make to be about 68 pence. Interest of 13p suggests that your money has only been earning interest for around six days of the month.

I can't explain why the interest on account 1 is so low, unless the balance has been less than the amount you quote for at least some of the month.

Ifts

Account 1) Using the savings calculator on this site, I am also getting the £134.70 figure on £10775.96 @ 1.25% gross after a year.

Link to calculator: http://www.moneysavingexpert.com/savings/savings-accounts-best-interest#calc (scroll to bottom of the page for the calculator).

Account 2) Regular Saver - Using the regular saver calculator on this site I am getting £51.75 interest after a year if you regularly save £250 for 12 months @ 3.20% gross pa.

Link to Regular Saver calculator: http://www.moneysavingexpert.com/savings/best-regular-savings-accounts (scroll to bottom of the page for the calculator).

It would help if you can state the name of the accounts, who they are with and when opened to assist posters with your query (then the clever maths wizards (not me ) on here can give you an exact figure).

AdamAnd wrote: »

I did write a clearer post but this bleeping site asked me to log in when I was already logged in and I lost everything *"&&*%^&(*%$£%%

Yes I remember those days, used to happen to me too!
When writing a longish post I try to press the 'Preview Post' button every now and then and it seems to do the trick you don't lose everything (keeps you signed in).

P.S. Welcome to the [STRIKE]bleeping[/STRIKE] site by the way
Its very useful when you get used to using it

AdamAnd

Thank you both very much for your replies! I don't know how to quote what you have posted so instead, here is some additional info you mentioned would be useful:

Bank is Barclays both Accounts opened on 28/05/2013 and give monthly interest return

Account 1 is "e-savings Reward" it's gross rate pa = 1.25% and AER = 1.26% - I deposited 10,775.96 on 28/05/2013 and got £2.22 in interest on 02/06/2013

Account 2 is "Monthly Savings" it's gross rate pa = 3.20% and AER = 3.25% - I deposited £250 on 28/05/2013 and got 13p interest on 02/06/2013 - only a maximum of £250 can be deposited each month, on the 06/06/2013 another £250 will go in an then 250 on the 6th of each month until April 2014.

Having read your comments I have given myself the title of "numpty". It appears only having the account open since the 28/05/2013 could be the reason why the interest is so low.

Having said that I put aside £3000 for the Monthly Savings account (£250 each month standing order for 12 months) because I thought that combined with £10775.96 in the e-savings reward account would give me a better return on interest overall after 1 year, better than putting all of £13,775.96 in the e-savings reward and not opening a Monthly Savings account. Has numpty here miscalculated?

Thanks for suggesting the preview post technique, regret getting angry as MSE is the best site around along with HotUKDeals. I'm not completely with it due to colitis, osteoarthritis and now a blocked ear with tinnitus (shakes fist at sky).

Thanks again for your time and help.

Vortigern

AdamAnd wrote: »

Bank is Barclays both Accounts opened on 28/05/2013 and give monthly interest return

If you opened the accounts on 28th May you haven't yet earned a full month's interest. Your figures suggest you've earned 6 days interest - which would be about right. You'll get more next month (if you leave the money in!)

Ifts

AdamAnd wrote: »

Having said that I put aside £3000 for the Monthly Savings account (£250 each month standing order for 12 months) because I thought that combined with £10775.96 in the e-savings reward account would give me a better return on interest overall after 1 year, better than putting all of £13,775.96 in the e-savings reward and not opening a Monthly Savings account. Has numpty here miscalculated?

No I would say you have done it right, they call it dripfeeding to maximise interest.

If you read up on the Regular Savings Page: http://www.moneysavingexpert.com/savings/best-regular-savings-accounts - you will see thats what is recommended to get the most interest if you have a lump sum (as you are limited to what you can put in the RS each month).

You can also use the calculator on that page to work out the amount of interest to expect if you drip-feed the money into the RS from the savings account (just select the 'I want to drip-feed the money...' option)

I just entered the numbers you supplied into the calculator, and it works out £31 better by drip-feeding to the RS from the savings account:

After drip-feeding the cash for 12 months...

TOTAL INTEREST EARNED: £166
£114 from the normal savings & £52 in the regular saver.

If you'd kept the money only in the normal savings account you'd have
earned £135 in interest.

Read up on this page: http://www.moneysavingexpert.com/savings/ - on ways to maximise the interest you can get on your money and check out some of the best savings rates that are on offer at the moment (although not very high these days!).
Also read through the posts on this board to get ideas from other posters how to get a little extra on your money.

VT82

AdamAnd wrote: »

Having said that I put aside £3000 for the Monthly Savings account (£250 each month standing order for 12 months) because I thought that combined with £10775.96 in the e-savings reward account would give me a better return on interest overall after 1 year, better than putting all of £13,775.96 in the e-savings reward and not opening a Monthly Savings account. Has numpty here miscalculated?

When you say 'set aside', do you mean in a current account or other non-interest bearing account? You should leave it in your e-savings account until it is needed to drip feed into the monthly saver.

If you leave it in the e-saver, the average rate on the 3k over the year will be approximately (1.25%+3.2%) / 2 = 2.23%. If you leave it in your current account, the average rate on the 3k over the year will be approximately (0%+3.2%) / 2 = 1.6%.

AdamAnd

Many thanks for the replies. In answer to your question regarding the £3000 being set aside, that money is in my current account which is non-interest bearing. The problem with putting it in the e-saving reward account and transferring £250 out each month from there, is that if you take money out Barclays will penalise you and reduce the rate of interest from 1.25% gross to 0.85% gross (0.85% AER also).

I wasn't sure what to do but if you believe I'm better off having split my money between both the e-savings reward and the monthly savings accounts as opposed to putting it all in the one e-savings reward account, then I am happy.

Thanks for the MSE links and advice on reading other posts which I'll be looking at, I should have done that before opening the accounts! Cheers!

johnmoney05

AdamAnd wrote: »

Many thanks for the replies. In answer to your question regarding the £3000 being set aside, that money is in my current account which is non-interest bearing. The problem with putting it in the e-saving reward account and transferring £250 out each month from there, is that if you take money out Barclays will penalise you and reduce the rate of interest from 1.25% gross to 0.85% gross (0.85% AER also).

I wasn't sure what to do but if you believe I'm better off having split my money between both the e-savings reward and the monthly savings accounts as opposed to putting it all in the one e-savings reward account, then I am happy.

Thanks for the MSE links and advice on reading other posts which I'll be looking at, I should have done that before opening the accounts! Cheers!

You can open some other account which are paying better rate for one year at 1.75%, like NS&I...You don't have to leave all in your current account.

AdamAnd

That's a good point about putting the £3000 or more in another savings account with another bank and getting interest off of it even though it gets transferred out, I'll have to look at other banks! I feel like even more of a numpty! It will need to be an account with no withdrawal restrictions.

This is what I've worked out regarding interest on both the Monthly Savings and the e-savings Reward accounts at Barclays after using the MSE calculator you linked:

£10,775.96 @ 1.25% interest after 12 months = £135 interest
£250 per month @ 3.20% interest after 12 months = £51.75 interest
Combined Total = £186.75 interest

If I don't have the Monthly Savings account and just have the e-savings Reward then:
£13,775.96 @1.25% ineterst after 12 months = £172 interest

186.75 - 172 = 14.75

I'll be £14.75 better off having two acounts as far as I can tell using the MSE calculator, can anyone else concur? I appreciate your time and help in this, £14.75 isn't huge but I'll definately take it!