TSB 5% current account: how to exploit it

jimjames

grandplonker wrote: »

Precisely. I have so far kept the money in the First Direct current account, which equals 2.4% in real life.

The AER for the First Direct regular saver is 6%. What makes you think it is any less?

Why would you be paid interest for money you don't have in your account?

G_M

grandplonker wrote: »

There's more than one way to skin a cat.

and more than one way to gut a fish.

but that doesn't alter the multiple misunderstandings in your OP. I can't even be bothered to start......

bigadaj

I think the OP is formulating a cunning way to combine this with his leverage strategy in his other thread. This time next week well be millionaires rodders.

grandplonker

Normally I would just say I've more enjoyable ways to waste my time than have catfights, but there's an opportunity to get some facts straight here.

The real-life interest on a Regular Saver is half the quoted rate - that is, if there's a lumpsum going between the current account (at 0%) and the regular saver. It's a common and easily made mistake covered in this article. Outdated, but the arithmetic applies. First Direct Regular Saver's quoted 6% gross is in fact 3% gross. That's something I've recently understood, and as I've noted the interest rate can be increased by using a current account with a higher rate.

Second, AER accounts for two things. There is compounding (covered by post #4), which I hadn't accounted for, but is marginal anyway. There is also tax. All savings interest pays tax unless it's in an ISA, because that interest is income like a salary. The rate paid is 20% for most of us, 40% for higher rate taxpayers, and of course zero for non-taxpayers.

See this HMRC page if you have a problem with that.

Of course First Direct have to quote 6% for both AER and gross, because that depends on the customer's tax rate. They've noted that in their small print. After 20% tax, it works out at 4.8%, or 2.4% if measured pessimistically by the way I have used it. I can use the Regular Saver any way I wish.

To whom it may concern: come back when your IQ has made it into double figures and you have learned the concept of politeness. Then we can have an intelligent conversation. I'm struggling to believe how most of you are probably realty owners unlike myself.

And no, leveraging is nothing to do with it.

jimjames

grandplonker wrote: »

Normally I would just say I've more enjoyable ways to waste my time than have catfights, but there's an opportunity to get some facts straight here.

The real-life interest on a Regular Saver is half the quoted rate - that is, if there's a lumpsum going between the current account (at 0%) and the regular saver. It's a common and easily made mistake covered in this article. Outdated, but the arithmetic applies. First Direct Regular Saver's quoted 6% gross is in fact 3% gross. That's something I've recently understood, and as I've noted the interest rate can be increased by using a current account with a higher rate.

Can you explain that again as you've lost me? I don't have a FD account so no idea of the rules.

Are you saying you have to keep the money in the current account for a set period at 0% to get the regular saver?

Inside the regular saver the interest rate is 6%, no ifs, not buts - that is the rate. Outside it the rate before the money goes in can be whatever you want but you can't expect banks to quote rates for the sources of funding - but if there is a rule that the money has to sit in their current account then that should be considered by anyone taking the account.

Edit - just read that link. No idea why you are trying to claim the rate is anything but 6% as that article explains it fairly clearly but the rate IS 6% not any other number you care to make up.

As per my previous post, why do you think you should be paid interest for money that isn't in the account?

To quote: You earn interest on the first £250 for 12 months, then £500 for 11 months, and so on.

grandplonker wrote: »

To whom it may concern: come back when your IQ has made it into double figures and you have learned the concept of politeness. Then we can have an intelligent conversation. I'm struggling to believe how most of you are probably realty owners unlike myself.

Many people would also consider politeness to include acknowledging when they have made a mistake rather than perpetuating it and blaming others.

ColdIron

grandplonker wrote: »

come back when your IQ has made it into double figures and you have learned the concept of politeness

Has the irony of this statement escaped you?

guymo

grandplonker wrote: »

Second, AER accounts for two things. There is compounding (covered by post #4), which I hadn't accounted for, but is marginal anyway. There is also tax. All savings interest pays tax unless it's in an ISA, because that interest is income like a salary. The rate paid is 20% for most of us, 40% for higher rate taxpayers, and of course zero for non-taxpayers.

You are wrong.

AER means the effective gross annual interest rate including compounding. It does NOT mean net of basic rate tax. It just doesn't. This is not something we can have a reasoned argument about and it does not matter what one's IQ is. But if a quote from the TSB web site might help:

**TSB Classic Plus account gives 5% AER/4.89% gross variable interest on balances up to £2,000.

Note the word "gross" in there.

grandplonker

Jimjames:

The First Direct Regular Saver needs monthly deposits of £25-£300. Deposits must come from the First Direct current account, which pays zero interest. After a year, the balance is transferred from the Regular Saver back to the current account and it begins again.

Therefore, if the customer has left their cash in a standing orders loop like that (as I have done), they are only earning half of the quoted 6% interest. That is the total effect. It is easy to imagine that 6% applies to £3,600 if that is how much has been deposited during the course of the year.

I only recently understood that. The linked thisismoney.co.uk article outlines the logic to the deceptively high interest rate.

Guymo:
See this.
MSE also quotes varying tax on savings interest, most commonly 20%.

guymo

grandplonker wrote: »

Guymo:
See this.
MSE also quotes varying tax on savings interest, most commonly 20%.

It is true that different people pay different rates of tax on savings interest. It is not true that AER takes that into account.

Do me a favour if you want to understand what "5%AER / 4.89% gross" means.

Get a calculator.

Type in 4.89.
Divide by 100.
Divide by 12.
Add 1.
Raise to the 12th power.
Subtract 1.
Multiply by 100.
Note how close the answer is to 5.

YorkshireBoy

grandplonker wrote: »

Therefore, if the customer has left their cash in a standing orders loop like that (as I have done), they are only earning half of the quoted 6% interest.

It doesn't work lik...


Never mind, I can't be bothered!