Regular Saving Accounts, Why?

Brighty

Hi guys, got some cash to put away and am opening a mini cash isa for this year, so thats sorted, but will have around 7k more.

I'm having trouble seeing the point of the regular savings account though. By my calculations the different between an icici savings account at 6.05% and drip feeding 500 a month from icici to a 7% ybs reg saver is just £25 after basic rate tax. To me thats not worth the risk of needing to withraw all or some of it before the years out and losing the bonus, meaning you only get 3.5% on it.

My working out is as follows, done on excel

6K in ICICI at 6.05% = 0.5041% monthly
Month 1 6000 x 1.05041 = 6030.25
Month 2 6030.25 x 1.05041 = 6060.64
Month 3 6060.64 x 1.05041 = 6091.20
.
.
Month 12 6341.22 x 1.05041 = 6373.19


5.5k in icici reducing 500 per month
Month 1 5500 x 1.005041 = 5053.08
Month 2 5053.08-500 x 1.005041 = 4576.03
Month 3 4576.03-500 x 1.005041 = 4096.58
.
.
Month 12 672.06-500 x 1.005041 = 172.93

500 in ybs increasing by 500 per month at 7% = 0.005833% monthly
Month 1 500 x 1.005833 = 502.92
Month 2 502.92+500 x 1.005833 = 1008.77
Month 3 1008.77+500 x 1.005833 = 1517.57
.
.
Month 12 5696.29+500 x 1.005833 = 6232.44

172.93+6232.44 = 6405.37 which is just 32.18 more, and just 25.74 more after tax.

Where have i gone wrong? Can't seem to work out the huge saving that Martin works out. If i'm right, i really don't see the point.

Please tell me my maths is wrong cos i can't beleive Martin is:D

Cheers

Brighty

bristolleedsfan

personally i wouldnt bother drip feeding into reg savers that dont last longer than 12 months so would agree with your perception to that extent, re yorkshire BS example, as yorkshire RS carries on until someone has reached 20000 maximum invested, the xtra benefit of the rate difference between the accounts u mention extends into years 2 + 3 + possibly future years ( assuming of course that the current rate difference is maintained)

since martin wrote his article the gap between the regular savers ( that last longer than a year) and top paying easy access internet accounts has narrowed partly due to yorkshire BS not increasing their R/S rate at all in response to the last base rate rise and sainsburys bank increasing their internet instant access account by 0.50% gross within last month or so

Brighty

Ah ok, i thought all regular saving accounts were 1 year only, makes the ybs reg saver a bit more attractive, but will still give it a miss as will be getting another mortgage in a year or so.

Cheers for the reply

Brighty

plonkee

Not really important to the question but to work out the monthly interest rate you need to take the 12th root of 1 + interest rate due to compounding.

Sounds more complicated than it is, in excel the formula is:
=(1+interest_rate)^(1/12)-1
So in this case where the annual interest rate is 6.05%, the monthly rate is:
=1.605^(1/12) = 0.004907 = 0.4907%

debbie42

plonkee wrote: »

Not really important to the question but to work out the monthly interest rate you need to take the 12th root of 1 + interest rate due to compounding.

Sounds more complicated than it is, in excel the formula is:
=(1+interest_rate)^(1/12)-1
So in this case where the annual interest rate is 6.05%, the monthly rate is:
=1.605^(1/12) = 0.004907 = 0.4907%

60%? Where, where????

Shambler

Thanks for the information.

I tested it for myself and if I have my spreadsheet done correctly you are completely correct.

For it to be worth trickling money over to a regular saver the interest rate on that saver has to be as high as possible.

In your situation

7% earns you £30 extra
8% earns you £62 extra
9% earns you £93 extra
10% earns you £125 extra

That is assuming you can put in a £500 lump sum and £500 a month...alot are limited to £250 a month so the benefits are even less.

Definitely a longer term than 1 year is needed.

plonkee

60%? Where, where????

Sorry I missed a 0 out :rolleyes: typing isn't my strong suit.