Whats wrong with my Reguler Saver Maths?

stphnstevey

Trying to work out the equivilent (ie what rate you actually get) annual interest rate on a long term reguler saver. Here looking at YB RS at 7% gross (5.6% Net), £500 month max (assume making max contribution).

I am working it out over 3yrs or £18K total investment (I know you can invest upto 20K, but I am trying to keep it simple).

I would use a Cahoot Savings account as feeder at 5.37% gross (4.3% Net).

Over 3yrs I work out the interest from:
Cahoot Savings - £1193 Net
YBS RS - £1554 Net
(Note: doesn't include compound interest)

TOTAL NET INTEREST: £2747

Now here is where I lose it!

As this is over 3 years, I divide the interest by 3 to get the yearly interest.

Now do I divide this by
a) The amount invested per year or £6000
b) The total amount invested over three years or £18,000

(a) gives me annual rate of 5.09% Net
(b) gives me 15.26% Net

Which one is right? as one is extremely better than the other!

Doing a similiar calculation - I work out the actual rate on a similiar 7% RS with Halifax (which only lasts 1yr, max monthly contribution £250) comes to 5.35% Net. If i go with calculation (a) above, then it appears I would be better off doing three years of the Halifax RS than three years of the YBS RS?????

CLAPTON

you need to lay your assumptions out very very clearly.

so are you saying that you are

a. starting with 18,000 in a cahoot saving a/c ?
b. what is the APR of the cahoot a/c ?
c. then each month you transfer 500 to Yorkshire BS Regular Saver which pays 7% APR
d. you are working it out net of tax?
e. all interest is reinvested?
f. why aren't you including compound interest?

and what's your question?
do you want to know the total interest earned over the three year period or what?

thumshie

The 5.09% sounds like it's right as it should be between the two individual accounts 4.3% & 5.6%.

Your maths must be wrong(what were your yearly interest values for the two accounts) for the halifax option ,as it will not beat the YBS..

oldfella

the interest values are about right - the difference with the Halifax deal is you get the 7% on a much smaller value - you only make about £90 interest each year on the Halifax component

Milarky

Ignoring compounding its almost the average of the two rates: 6.25% gross (5% for net basic taxpayers)

bristolleedsfan

feeder account rate of 5.37% gross is one of the lowest on the market, which will drag the average rate down, why not put your lump sum in a 6% gross account and use the 6% account for feeding, or y not put the lump sum in halifax 6.50% gross 1 year term, some might say wait for july BOE meeting trouble is easy to keep waiting month after month .

stphnstevey

CLAPTON wrote: »

you need to lay your assumptions out very very clearly.

so are you saying that you are

a. starting with 18,000 in a cahoot saving a/c ?
Yes
b. what is the APR of the cahoot a/c ?
The AER is 5.5%, Gros 5.37% and Net 4.3%
c. then each month you transfer 500 to Yorkshire BS Regular Saver which pays 7% APR
Yes - or 5.6% Net
d. you are working it out net of tax?
Yes - I was trying to simplify things by taking tax out the equation, hence used Net rates
e. all interest is reinvested?
No - This would be compounding the interest, which is a more difficult sum
f. why aren't you including compound interest?
As above, but also alot of of 12 months RS's pay annual interest, so there is no compounding. Therefore I thought it unfair to include compounding in comparing accounts greater than a year to 12 month ones. I am happy to include this if this can simply be done (which I a imagine it could with a bit more thought),as long as we are comparing like with like
and what's your question?
I am trying to compare LONG term RS's with paying off my mortgage - currently 5.18%.
do you want to know the total interest earned over the three year period or what?
Also, I was trying to work out the actual rate you receive (ie. the rate of return on your investment - we all realise that because of drip feeding you don't get the advertised RS rate but a combination of the drip feeder account rate and the RS rate, also there is a limit to the amount you can invest, therefore I am looking on the return per £1 invested or more simply the % rate)

Thanks for all the responses - I have tried to clarify things above.

Also - I use Cahoot Savings as the drip feeder because:
a) Its a fairly high rate
b) I have a Cahoot Current Account and it's easy to transfer money over in lump sums to then drip feed via the current account. I use the Savings account rate as the vast majority of the time the money is in the savings account.
c) My salary (my main source of income) comes into my Cahoot Account - then proportions can be transferred to savings or RS
d) Most higher interest accounts do not allow DD and those that do seem a bit more of a hassle to transfer money over to then drip feed from

Hope this clarifies a little!

1 yr interest Halifax = £160.88

Jake'sGran

There was another letter in Diana Wright's Question of Money column in The Sunday Times last Sunday from yet another investor who thought she was going to get the quoted rate on all the amount invested in one year. There is an example given of how to work it out. It should still be available to read on line. I have kept itbut not sure if I can copy and then paste it here.

stphnstevey

Do you have a link?

If not, don't see why you can't copy and paste?

tomstickland

If you move an amount from a feeder to the reg saver in a year then the total interest will be approximately the average of the AER for the two accounts, minus tax.

If you take 3 years to move the money over then the total interest accrued will be about 3 times that amount. The AER will be roughly unchanged.

VeryTrying_2

Jake'sGran wrote: »

There was another letter in Diana Wright's Question of Money column in The Sunday Times last Sunday from yet another investor who thought she was going to get the quoted rate on all the amount invested in one year. There is an example given of how to work it out. It should still be available to read on line. I have kept itbut not sure if I can copy and then paste it here.

Found it! It's a great column for handy hints.

MM writes: I took out a Halifax Regular Saver Plan in April last year, with a £200 initial investment and a monthly sum of £200 for 12 months. In total, I invested £2,600. The interest rate quoted was 7% gross. My annual statement shows interest of £91.69. Whatever way I calculate it, I reckon I should have got £182. I phoned the helpline twice, but could not get a sensible answer. Am I missing something?

Yes. Banks really should learn how to explain these things properly. The point is, you only start earning interest on money once it is actually invested, and the interest rate quoted is an annual one. True, you ended up with £2,600 in the account at the end of the year, but you only had £200 invested at the start, creeping up by £200 every month. Roughly speaking, on average you had £1,300 invested for the full year – so Halifax’s calculation looks spot-on to me.

E-mail Diana Wright at the address below (no attachments please) or write to A Question of Money, The Sunday Times, 1 Pennington Street, London E98 1ST, giving a daytime telephone number.



http://business.timesonline.co.uk/tol/business/money/consumer_affairs/article1976816.ece