Working out a savings strategy

Extra

I'm looking for a strategy for my savings and would like some feedback from all the experts here.

I have a bunch of savings in an account with a terrible interest rate. I want a better rate of interest but also to retain instant access. I've already maxed out my ISA and would prefer not to change my current account. (partly for convenience reasons and partly for my £2000 interest free overdraft)

I was considering opening an account for all the regular savers recommended on the page here. There are currently three at ~3% (the rest require current accounts or are for children) This allows me to save 3 x £3000 over the year and get the higher rate of interest.

I used the calculator and assuming I also open the best savings account for that £9000 (1.5% AER) my interest for the first year goes from £135 to £208 -- £73 extra.

£73 is £73 but it also means I have to keep on top of doing the transfers every month and I'm wondering if it it all worth it. I also have to do my own tax returns and more sources of interest is more numbers to hunt down. Would you consider it worth the hassle? One regular saver with a standing order would be less hassle and still some of the benefit.

One thing I do like about this strategy is that all the savers allow one withdrawal per year. If I did need some of the money for something, I could just close one account. Another thing I like is that it allows the possibility of opening new, better accounts as they come up and reducing the payments to the worse accounts.

Please let me know what you think of this idea and any improvements you can make to it.

YorkshireBoy

Have you considered saving in current accounts?


Lloyds Vantage (3 accounts, 3% AER paid on £3-5K)
TSB Enhance (same as above)
BoS Vantage (same as above)
Nationwide FlexDirect (5% AER for a year on up to £2.5K)
Yorkshire Bank (4% AER on £3K for 13 months)
Santander 1-2-3 (2 accounts, 3% AER on £3K+, but some additional hoops to jump through)

All have conditions attached, but the funding can be automated by standing order if you so wish.

If you want to also play around with regular savers, pay them from these accounts, rather than from a 1.5% AER paying account (that you seem to suggest doing?).

bowlhead99

Extra wrote:

I have a bunch of savings in an account with a terrible interest rate. I want a better rate of interest but also to retain instant access. I've already maxed out my ISA and would prefer not to change my current account. (partly for convenience reasons and partly for my £2000 interest free overdraft)

I was considering opening an account for all the regular savers recommended on the page here. There are currently three at ~3% (the rest require current accounts or are for children) This allows me to save 3 x £3000 over the year and get the higher rate of interest.

I used the calculator and assuming I also open the best savings account for that £9000 (1.5% AER) my interest for the first year goes from £135 to £208 -- £73 extra.

You say you don't want to change your current account. But, because banks and building societies want to hook you in to building your financial world around a current account with them, the best rates you can get at the moment are actually current account deals with a few terms and conditions, rather than savings accounts. So, to get the best rates, accept that you'll need to open a current account.

This doesn't mean you have to close your existing current account. Simply open a second current account with a different bank from the one you get your salary into. If there is a minimum monthly deposit (say £500, £750 or £1000 pm), just transfer this into the account once a month then move back next day. Or even, same day. If there is a minimum number of direct debits you need to set up to 'convince' them that it's your main account, just set a couple up. E.g. one to PayPal, one to pay your phone bill. There are whole threads here dedicated to direct debits you can set up that will only actually draw cash from you infrequently, if at all.

It seems ridiculous that you would set up a "main" savings account at only 1.5%, and drip into three separate regular saver accounts over the year to get a blended average rate of 2ish percent, when Santander pay 3% on up to £20k and also pay cash back on your bills.

Also, if you have £9k of cash burning a hole in your pocket you probably don't need to worry about having a £2k overdraft facility, interest free or not. If you only need temporary cashflow you could take out of the other new current account or simply have some credit cards that you pay off the next month.

There is probably something to be said for keeping your real "main" current account open a long time because sometimes a longstanding history can help getting credit or access to services or whatever, so don't feel you have to close it when you open another elsewhere. I have a £6k overdraft facility with Lloyds even though I don't really need it as I have tens of thousands of space on credit cards; but I wouldn't want to close it as I might not get anyone else to give me the same at a new bank. It gives me flexibility, to know I have it. Didn't stop me opening accounts at Nationwide or Citi though.

Personally, I can't be bothered opening a Santander account too, because I don't have a huge amount of cash outside my ISAs and investment accounts. But if I wanted to maximize interest earned and didn't mind jumping through hoops to do it, I would definitely get one Santander 123 account rather than mess around with four or more savings and current accounts to hold my £10-20k.

Extra

Thanks for those incredibly useful answers. I'm certainly glad I asked as my original idea seems crazy after reading your posts.

One thing that put me off the current accounts was that (at least one I looked at) required me to use their transfer service which also closed the account I was transferring from. I'll have a closer look at them all. I guess it's even possible to open a temporary one somewhere just so I can transfer away from it. Hopefully I won't have to.

Archi_Bald

Extra wrote: »

One thing that put me off the current accounts was that (at least one I looked at) required me to use their transfer service which also closed the account I was transferring from.

The only time you must use the transfer/switching service is if you want to take advantage of any joining offers, such as the £100 at the Coop or First Direct. But you can open the same accounts without any switching. You just don't get the joining bonus then.

Eponym

Often the switching service doesn't actually require you to close the original account. Some give you the option to leave it open.

Archi_Bald

Eponym wrote: »

Often the switching service doesn't actually require you to close the original account. Some give you the option to leave it open.

None of the banks who have joining incentives offer a partial switch service.

Extra

I was hoping to stooze the £2K overdraft but 3% on 2K is £60. 3% on £40K is £1200 which is more important than pennies stoozing.

The Santander 123 account looks attractive because it will take care of half my savings. I'm already paying for their card so I'll get a year of the card without fees and I'll get cashback on a lot of direct debits I already have. Does anyone know for certain if their switching service forces me to close my current account?

The other £20K of my savings is going to be more trouble. All the accounts seem to require about £1000 paid in every month or use of a switching service (which I can only do once). Are they really OK with automating standing orders pushing £1000 through all of them?

Working from Yorkshire boy's useful post, here is what I could do with the other £20K:

Nationwide Flex Direct: 5% on £2500 (pay in £1000/month)
Yorkshire Bank: 4% on £3000 (£1000/month)
Lloyds Vantage: 3% on £5000 (£1000/month)
TSB Enhance: 3% on £5000 (£1000/month)
BoS Vantage: 3% on £3500 (£1000/month)

This all looks quite good and direct debits are not a problem where they are needed. I'm nervous about pumping £1000 between all the accounts. Is there nothing in the small print that prohibits this? If not, what's to stop people setting up a cycle with 2 or more accounts with no income at all?

Some quick questions:
Is there something simpler/better that I a missing?
What is applying for 6 new current accounts going to do to my credit score?
Do I need to close my existing current account for the Santander 123 account?

Thanks for all your advice so far. It's been very helpful.

carly

You don't need to close your existing account in order to open a Santander 123.

You can have 2 x 123 accounts, thus removing the need to open multiple accounts elsewhere.

Each needs to be funded with £500 each month from an external account ( but you can always withdraw that amount back to your existing account immediately). It does not have to remain in the 123 account. You will need 2 x DD on each account in order to receive the cashback

Don't forget to use Quidco or Topcashback when applying for the 123 account in order to receive futher cashback.....currently £35 if I remember correctly.

Extra

Thanks for the tip on Quidco/Topcashback. I would never have thought of that!

Good to know I can keep my existing account.

A second 123 account would cost another £24/year and wouldn't get the 4--5% on a few thousand but would be simpler and easier to set up and maintain.

innovate

Sorry to rain on your parade but for Quidco/TCB cashback you need to switch, which closes your old current account.