MSE News: TSB to pay 5% interest on new current account – is it any good?

Kernel_Sanders

MarkFromMullion wrote: »

They do.

I expect they do have monthly interest accounts, but is the one my post specifically referred to one of them ?

Hazzanet

Kernel_Sanders wrote: »

Take the table near the top of this page http://www.moneysavingexpert.com/savings/savings-loophole
It states that 2.4% (net) on £20,000 in the 123 a/c yields £450 after the £2pm fee has been deducted!

Kernel_Sanders wrote: »

I expect they do have monthly interest accounts, but is the one my post specifically referred to one of them ?

The one you refer to pays monthly interest.

Hazzanet

Kernel_Sanders wrote: »

I'm presuming the £6 shortfall isn't due to lack of compounding because I don't think Santander pay monthly interest, despite stating this in their website info about this specific a/c.: AER stands for Annual Equivalent Rate and shows what the interest rate would be if we paid interest and added it to your account each year.

If you max the account at £20k, anything over and above £20k is paid at 0%, therefore the AER is somewhat irrelevant as it is not possible to compound. On that basis, you need to use the 2.96% gross figure.

£20,000 * 2.96% -20% tax - £24 fee = £449.60

That is assuming you pay £2 in each month to cover the fee and maintain the balance at the full £20k.

Kernel_Sanders

I see that now, so do people with over £20000 in the a/c actually receive £49.33 pm instead of £50? I suspect they average this, as they do not use calendar months and so the amount must vary according to how many days there were in the previous month.

YorkshireBoy

Kernel_Sanders wrote: »

so do people with over £20000 in the a/c actually receive £49.33 pm instead of £50?

How can anyone earn £50 when the rate payable is only 2.96%?...not 3%, and there aren't 12 equal billing periods in a year.

I suspect they average this, as they do not use calendar months and so the amount must vary according to how many days there were in the previous month.

Although it's based on the date you opened your account, they do use a 'kind' of calendar month, in that there will be 28 days in one billing period, 30 days in 4 other billing periods, and 31 days in the remaining 7 billing periods (excluding leap years or course!). What you won't get with Santander is 32-34 days interest like you sometimes do with Lloyds, BoS, and TSB, because their month ends at close of business on the first working day of the month (and that can vary due to weekends and Bank Holidays).

And they don't "average" it at all. Each day you earn interest at:

Closing balance x 2.96% / 365

So if you had £20K in there for a full 31 day billing period you'd earn...

£20K x 2.96% / 365 x 30 = £50.28

And if you're a tax payer, £50.28 x 0.8 = £40.22

Hazzanet

Kernel_Sanders wrote: »

I see that now, so do people with over £20000 in the a/c actually receive £49.33 pm instead of £50? I suspect they average this, as they do not use calendar months and so the amount must vary according to how many days there were in the previous month.

Not exactly perfect, but assuming the interest is calculated from first day of month to last day of month (i.e. your monthly 'anniversary' falls on the first day of the month):

anoncol

Hazzanet wrote: »

Not exactly perfect, but assuming the interest is calculated from first day of month to last day of month (i.e. your monthly 'anniversary' falls on the first day of the month):

Thats not compound though.

innovate

anoncol wrote: »

Thats not compound though.

That is precisely the point. You cannot get compounded interest in the 123 if you have the full £20K in throughout the year (same if you keep the max in other accounts at other banks).

Of course you can skim off the interest and put it elsewhere to hopefully gain further interest - but that's a separate calculation.

Hazzanet

anoncol wrote: »

Thats not compound though.

Yes it is... at 0%

Post 84 explains why.

Kernel_Sanders

I think there's been some slight misunderstanding of my posts.
I've added the 12 figures under column E and it totals £592.01. Dividing by 12 gives you an average of £49.33, rounded to nearest penny - precisely the figure I gave in #85.