First direct reg saver vs Santander 123 current account?

JustAnotherSaver

With the FD reg saver paying 5% instead of 8% these days, but only being allowed to deposit £300pm, i couldn't get my head around which was the better option.

My 8% saver will be ending in a few months & i was wondering what was best - re-open once matured & do it all over again at the advertised 5%, or just lump the £3,600 in with the rest of my savings into a Santander 123 CA @ 3% with the full 3.6k earning the full 3% for the full 12 months?

bowlhead99

Is there any reason you can't do both? I mean put your 3600 in Santander when it matures from its current plan. Then day 1 you put 300 in FD at 5% keeping 3300 at 3% for a month. Day 32, you put another 300 in FD so now you have 3000 left in Sant at 3% and 600 in FD at 5%. Then day 62, you put another 300 in FD so now you have 900 earning 5% and 2700 remaining in the FD account earning 3%. Then day 93, move another 300 over to the higher rate. And so on.

In that way, you'll be earning 5% on as much as you can, while earning 3% on whatever you can't fit into the FD account at that particular point in time.

Seems a shame to just be earning 3% on the whole 3600 when after half a year if you'd carried on using the FD regular saver you could have 1800 earning you 5% and 1800 earning 3%. Your net gain is 2% on whatever funds you have in the FD saver - you earn a full year of interest on 300 of it and 11/12ths of a year on the next 300 of it and 10/12ths on the next 300 etc down to only 1/12th for the last 300. On average you have 1950 invested over the year, and you are making 2% extra on this compared to just having it sit in Santander. So it's worth about 40 quid to you, if you can be bothered.

frugalmacdugal

Hi,

see where you're going there, could you do a projection, too late for me.

bowlhead99

frugalmacdugal wrote: »

see where you're going there, could you do a projection, too late for me.

I don't know what you mean by 'do a projection'. I said it was worth using the reg saver to generate more interest, and you get about an extra 40 quid by doing that than just leaving it in the lower interest account all the time.

You get 3% on your 3600 for a year. which presumably you could get your head around at any time of night, it's 108 quid.

Then if you siphon some of it off for an extra 2% in the higher interest account for part of the year, you get 'about 40 quid' extra in round numbers (the 1950 x 2% = 39, of course it depends on the actual dates you make your deposits).

Clearly if you have a chunk of cash moving smoothly from one account to the other over the year, you end up earning 3% for 'about half the year' and 5% for 'about half the year' so on average it's 4%, ish.

Depending whether you pay tax at a marginal rate of 0% or 20% or 40% or 45% or 60% on each pound of new income, your net result after tax is paid will be lower than the 4 ish percent gross. Someone earning 100k for example would be on a 60% marginal rate (due to the loss of some annual allowance for every extra pound earned), and so a scheme bringing in a little over 4% gross would net them less than 1.7%, and they may be better in the best available cash isa. Of course if they are on 100k they are probably already able to fill their isa allowances so that would not be an option.

browser

You can get a projection with tax calculations included on the savings part of the main MSE site (look for dripfeeding article). As a newbie (to posting) I can't post links - I'm not trying to be deliberately vague

innovate

use the MSE calcs http://www.moneysavingexpert.com/savings/best-regular-savings-accounts#calculator and http://www.moneysavingexpert.com/savings/savings-accounts-best-interest#calc

JustAnotherSaver

Ah thanks.

The reason behind me asking was i'm sure i read that you don't get 5% throughout the year & that it works out as a bit less due to the staged deposits. Unless i've either misunderstood what i read or what i read was incorrect. It was a while ago now & i've only just got round to asking about it.

Thanks.

Yorkie1

The FD Regular Saver is 6%, not 5%.

innovate

JustAnotherSaver wrote: »

.... i'm sure i read that you don't get 5% throughout the year....

The AER is 6% (not 5%), throughout the year. The AER remains unaltered by how much you deposit when.

If you have £100 in an account for 1 year at 6% AER, you get £6 at the end of the year (ignoring any tax considerations).

If you have £100 in the same account for half of the year, you only get half of the interest - some £3 - at the end of the year. The AER is still 6%.

If you have £100 in the same account for one day, you get 1/356th of £6 - about 2p - in interest. The AER of the account is still 6%.

The principle illustrated above applies to all accounts with interest rates. AER is, and will always be, AER.