5% Savings Loophole

Archi_Bald

Lungboy wrote: »

I think his point is that you earn interest on a gradually growing amount, so the overall interest on the total amount deposited is not 6% of the total. If that makes sense?

That's already been answered by badger09

badger09 wrote: »

OP

You get 6% AER/Gross on the money you have in this account.

You get 0% on any money you don't have in this account

jimjames

Lungboy wrote: »

I think his point is that you earn interest on a gradually growing amount, so the overall interest on the total amount deposited is not 6% of the total. If that makes sense?

Of course the percentage works out as less than 6% of the final balance as you only have that money there for the last month. But for every penny that is in the account you get paid 6% pa on it.

Equally I only pay interest on my mortgage for the balance outstanding. I think you'd be pretty upset to pay the full interest in year 25 on the starting balance when you only have a small amount left to clear.

Eco_Miser

gazwaldo8 wrote: »

Having only this evening stumbled across the linked saver ac's at 6% - the big drawback for me would be the necessity to keep it for 12 months with continual deposits or you lose the 6% interest for the whole lot down to about the 1% mark.

What would you be doing with the money otherwise?
If spending it, fair enough, you don't want it locked away.
If keeping it in a bank, you can't beat the FD rate, so why not use it?

gazwaldo8 wrote: »

Also the thread stated that overall throughout the 12 months - due to the way it only allows regular monthly investment as opposed to a lump sum - over the 12 month plan it actually works out at 3% (provided you have stuck to the monthly investments).

Most threads that say that quickly get corrected, as this one has: you get the full 6%, but only on the half of the money that you have deposited, on average. The other half, either you haven't earned it yet, or it's sitting in an account earning (lower) interest.

gazwaldo8 wrote: »

In my case - Id rather opt for the 5% in tsb without the 12 month timescale limit.

See I have learnt something already! -I am getting there lol

Well, yes 5% instant access probably is better, but I thought you had a 3% account.

gazwaldo8 wrote: »

Nevertheless - Eco Miser - sorry - who am I to question or remark upon anything a sage such as yourself can advise us upon? :-/

You are as entitled as the rest of us. If you don't want incidental advice and comment being snarky is a good way to not get it - or any answers.

colsten

Eco_Miser wrote: »

you get the full 6%, but only on the half of the money that you have deposited, on average.

I appreciate you are trying to explain things but your explanation is as bad as saying you only get half the interest.

All of the money will earn interest for each day it is in the account and at 6% AER/gross. Of course money that is not in the account will not earn interest at this rate, and by the very nature of the account, it is not possible to deposit more than £300 a month.

For a very rough estimate of the maximum amount of interest you can receive if you pay in the maximum allowed each month and at each monthiversary, you can half the total maximum closing balance and multiply it by the AER %. Or you can multiply the maximum closing balance by half of the AER %.

For an exact calculation of the interest you will receive, you need to use the approach used for any interest bearing account, i.e. you need to calculate the daily interest and add up all the daily results. If you deposit the same amount each monthiversary, you could calculate it on a monthly basis, e.g.
- Month 1: £300 * 6% / 365 * 28
- Month 2: £600 * 6% / 365 * 31
- Month 3: £900 * 6% / 365 * 30
........
........
- Month 12: £3600 * 6% / 365 * 31

There are numerous regular savings calculators and ready made spreadsheets about that do the exact calculations for you. Google is your friend.

Eco_Miser

colsten wrote: »

I appreciate you are trying to explain things but your explanation is as bad as saying you only get half the interest.

I have to disagree there, over the year, the average balance is approximately half the final balance, and multiplying that by the full interest rate give the expected interest. That's what I said, and that's what you say in the third paragraph - and that's very different to saying that you get half the interest rate on the final balance, even if the resulting number is the same.

colsten

It is just wrong to say you get "interest on only half the money", or "only half the interest", and it is not what I said.

The 'quick and dirty' method of estimating the approximate interest payment doesn't mean the interest rate is halved, or that the amount of money interest gets paid on is halved.

Eco_Miser

colsten wrote: »

It is just wrong to say you get "interest on only half the money", or "only half the interest", and it is not what I said.

I didn't say it either. I said

you get the full 6%, but only on the half of the money that you have deposited, on average.

colsten wrote: »

The 'quick and dirty' method of estimating the approximate interest payment doesn't mean the interest rate is halved, or that the amount of money interest gets paid on is halved.

But the amount the interest is paid on is the sum of the daily balances divided by 365 which is (approximately) half the final balance. Or, on average you have half the final balance deposited, and that's the half that attracts the interest.

It's actually the number of pound-days deposited that is halved compared to a lump sum deposit, and I'll try to use that next time I try to explain that the interest rate isn't halved in a regular saver.

masonic

The real myth here is that any of this works any differently than any other savings account offered by banks. It should suffice to say that all accounts only pay interest on money that is actually deposited into the account and they only do so for the period during which it is deposited.

Unfortunately, any explanation that works with the faulty assumption that interest should be calculated from the final balance of the account has a tendency of being misunderstood to mean that regular savers are in some way not paying the full advertised rate on the whole balance deposited at all times.

BookerTee

colsten wrote: »

The 'quick and dirty' method of estimating the approximate interest payment doesn't mean the interest rate is halved, or that the amount of money interest gets paid on is halved.

The maths clearly show that it is.

colsten

BookerTee wrote: »

The maths clearly show that it is.

http://www.nationalnumeracy.org.uk/adults-issue

Neither the AER% nor the sum of money it is applied to get halved or reduced in any other way.