5% Savings Loophole

jimjames

BookerTee wrote: »

The maths clearly show that it is.

Shows that it is what?

Working out this interest is substantially easier than trying to work out how many yellow or orange sweets Hannah has eaten in this years GCSE paper.

gazwaldo8

It seems I have caused bit of confusion here - sorry.

I meant that over the full 12 month term of savings - that as pointed out - the total amount of money gathering interest would be roughly half the final total due to the gradual build up of savings.

I think this explains it better - direct from MSE post:

Sadly, regular saver accounts often receive negative publicity due to a flawed understanding. Many people say they've used regular savers, but only received around half the interest they thought they would. Yet that's because they expected the wrong amount, not because they were underpaid. Here's an example...

Mr Matt Matics
Mr Matt Mattics and his £3,000 savings

Matt has saved a total of £3,000 in a regular savings account paying 10% interest over a year, and is a non-taxpayer.

What Matt expects to earn? His simple sum works out that he's put £3,000 in at 10% therefore he should earn £300 in interest.

Why is this wrong? Matt only had £3,000 in there for the last month; it took a year to build up to that amount. You only earn interest on money in the account. So after the first month he was earning the 10% on just £250, half way through the year he was earning it on £1,500.

How Matt should work it out? Over the year, his average balance was roughly half the £3,000, in other words £1,500... so Matt should expect to earn around 10% of £1,500 over the year, which is £150.

gazwaldo8

“
Nevertheless - Eco Miser - sorry - who am I to question or remark upon anything a sage such as yourself can advise us upon? :-/
Originally posted by gazwaldo8
”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.

Ecomiser - may I apologise if I caused any offence - this was GENUINELY meant as a compliment - I have and continue to learn from you and your posts (as well as everybody else) - So a very public sorry for the way this may have been taken.

Eco_Miser

Apology accepted. This is the internet - we only have words on a screen to go by, and that phrasing did not read to me like a genuine compliment. Sorry for misreading your intent.

gazwaldo8

we only have words on a screen to go by, and that phrasing did not read to me like a genuine compliment

Noted

Apology accepted

Thank you.

Whitefish

Apologies if this has been asked before. I currently have the TSB 5% current account, but I will be able to earn more interest with the Santander 123 Account. The ideal situation is to keep the TSB account with £2000 in it to earn 5%, but switch to using the Santander account as my main current account to get the interest and cashback.

Is there a way of using the Current Account Switching scheme to automatically transfer my direct debits to the Santander account, without closing the TSB account as well? Or does that scheme always close the old account? If so, is there a simple way of moving direct debits across manually - I've never done this before, but I imagine it's a pain.

eskbanker

Whitefish wrote: »

Is there a way of using the Current Account Switching scheme to automatically transfer my direct debits to the Santander account, without closing the TSB account as well?

No.

Whitefish wrote: »

Or does that scheme always close the old account?

Yes.

Whitefish wrote: »

If so, is there a simple way of moving direct debits across manually - I've never done this before, but I imagine it's a pain.

No, you'd need to contact each DD recipient individually - many companies have online facilities to adjust this but you have to be careful of timings, i.e. don't try to make changes in the week or two leading up to payment. Focus on shifting the ones that would generate cashback!

Also, remember that you only earn 3% interest when the balance is over £3K.

jimjames

eskbanker wrote: »

No.

Yes.

No, you'd need to contact each DD recipient individually - many companies have online facilities to adjust this but you have to be careful of timings, i.e. don't try to make changes in the week or two leading up to payment. Focus on shifting the ones that would generate cashback!

Also, remember that you only earn 3% interest when the balance is over £3K.

Some banks also operate a DD/SO transfer service. However I wouldn't recommend it as the full Current account switch is far smoother with less hassle.

phillw

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. 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).
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

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

Yes, open a TSB and Nationwide (only 5% for a year though) current account before a regular saver. Throw in a Halifax account for £5 a month for good measure.

BookerTee wrote: »

The maths clearly show that it is.

It's a quick and dirty calculation that is approximate in some situations and way off in others.

The example on firstdirect.com is £117 interest when you deposit £300 a month for 12 months, which is 3.25%.

They appear to calculate interest at the end of the year by giving you 6% on the money deposited in month 1, 5.5% on the money deposited in month 2. The money deposited in month 12 only receives 0.5%.

You can boost the 3.25% with "one simple trick", by saving the maximum and then drop to the minimum (the T&C allow you to do this). The "regular" in the account name refers to the date, not the amount. At this point the halving the interest rate method is completely wrong.

deposit 575 (1 x 300)+(11 x 25) interest 26.25 rate 4.57
deposit 850 (2 x 300)+(10 x 25) interest 41.38 rate 4.87
deposit 1125 (3 x 300)+(9 x 25) interest 55.13 rate 4.90
deposit 1400 (4 x 300)+(8 x 25) interest 67.50 rate 4.82
deposit 1675 (5 x 300)+(7 x 25) interest 78.50 rate 4.69
deposit 1950 (6 x 300)+(6 x 25) interest 88.13 rate 4.52
deposit 2225 (7 x 300)+(5 x 25) interest 96.38 rate 4.33
deposit 2500 (8 x 300)+(4 x 25) interest 103.25 rate 4.13
deposit 2775 (9 x 300)+(3 x 25) interest 108.75 rate 3.92
deposit 3050 (10 x 300)+(2 x 25) interest 112.88 rate 3.70
deposit 3325 (11 x 300)+(1 x 25) interest 115.63 rate 3.48
deposit 3600 (12 x 300)+(0 x 25) interest 117.00 rate 3.25

Notice that the final calculation matches first directs example, so I'm confident my calculations are correct. They don't need to do daily interest as you can only make one deposit a month. It's simple interest calculated after 12 months and not compounded.

I'm planning on dropping after month 6 but when or if to stop depends on whether you have somewhere better to put the money, don't forget that even though the money in the last month earns 0.5% that if you put that into an 3% account it will only be earning 0.25% a month. If you're feeding the account from a 3% current account then you're effectively earning 0.25% a month while it's waiting in the 3% account and 0.5% once it's in the regular saver. The "it's not worth the bother as you're earning half the interest rate" is based on incorrect assumptions.

If you have a £575 lump sum in a 3% account then it will only make 17.49, but feeding it into a regular saver (one payment of 300 and the rest 25) will earn 26.25 from the regular saver and 4.20 from the 3% current account making a total of 30.45 which is 5.29% for the year.

If you only have a TSB 5% account with £2000 and no spare income then you could even make money by emptying it into a regular saver using the 6 month plan (6 x 300) + (6 x 25) as it will give you 88.13 from the regular saver and 27.55 from the current account. In total you make £115.68 which is a rate of 5.784% for the year. Compare that to leaving the £2000 in TSB and you'll make £100, plus whatever you make on interest on the interest when you move it elsewhere.

While 0.784% might not seem worth it, that is higher than most people are getting in total from their savings. But it's only about a tenner and you'll be spending more time managing the accounts than you do spending the money.

The first direct regular saver makes a perfect repayment vehicle for the first direct 0% on purchases credit card. It's a much better rate than using a cash back card.

Whitefish wrote: »

Is there a way of using the Current Account Switching scheme to automatically transfer my direct debits to the Santander account, without closing the TSB account as well?

When I switched to Yorkshire bank for the 4% last year you could do that, but I don't know if Santander allows it but you can just phone them and ask. If they don't then find a bank that will do it, open an account there and get them to switch your direct debits. Then get Santander to go through the full switch. This is also useful if you want to open an account that gives you a switching bonus as they make you close your old account.

I couldn't justify a 123 account for the cashback, once they take the £2 fee it came out pretty much even. If you have larger direct debits then switching suppliers may save you more money and potentially solves the moving direct debit problem. But if you're already on the best deals or tied in then I would only switch the direct debits to Santander if they will earn cashback and use the others to satisfy other bank account requirements. Schedule to switch them after a payment has gone out, Yorkshire bank sent a form with a tick box and a date against each direct debit I wanted to switch. You don't get the same level of "protection" if you switch without the guaranteed switch scheme, if you tell them to switch it at the wrong time then it can cause missed payments etc. If you move the DD by contacting the supplier then it's their fault if they mess it up, so it is safer.

If you have 5000 or less then it's not worth opening a 123 for the interest as TSB + Tesco will beat TSB + 123.

As you'll hit the upper limits of the accounts I've assumed no compounding of interest here, you'll make pennies more in 123 but you will probably make pennies from the interest you sweep out of the other accounts too. It shouldn't affect the comparison much and it's just easier.

TSB 2000.00 interest £100.00
Tesco £3000.00 interest £90.00

compared to

123 5000.00 interest £150.00

Throw in a Nationwide account paying 5% up to £2500 and Club Lloyds pays 4% on up to £5000 as long as you have at least £4000 and you need more than £12500 before it's worth considering keeping money in a 123. It's never worth switching to 123 just because they pay interest on a higher balance, you should always fill up the 5% current accounts and 4% current accounts first.

TSB £2000 interest £100.00 rate rate 5%
Nationwide £2500 interest £125 rate 5% (first year only, you need to change it to a flex account as soon as the rate drops so you can flip it back 12 months later)
Club Lloyds £5000 interest £200 rate 4%
Tesco £3000 interest £90 rate 3%

Total £12500 interest £515 rate 4.12%

compared to

123 £12500 interest £375 rate 3%

You'd need £17167 in a 123 before you would make the same interest as £12500 in TSB+NW+CL+Tesco.

If you have a serious amount of cash then 123 can be worth opening, you'd need more than £15500 with £12500 in the accounts I've listed and the remaining in the 123. If you're using interest + DD to justify the £2 a month fee then factor in how the calculations are affected when the DD takes your 123 balance below £3000. If it could drop below £3000 then you'd end up with 1% or 2% interest, but you can get 2% at Yorkshire bank up to £3000 with no fee. Although at this point you're well in mortgage overpayment territory, so I wouldn't bother.

It all depends on how much money you have and how much effort you want to put in, if you cost your time taken then some of these things aren't necessarily cost effective.

Carnival789 wrote: »

when my first year with nationwide is over (and therefore the 5% rate that goes with it) then I'll be down to 6!

If you go through their switch team and convert it to a flex account (they send you a new card but the account number stays the same) then you can change it back to a flex direct in 12 months and you can use the free travel insurance in the meantime.

You can also make money by referring people to switch their account to nationwide (IIRC you get £50 and they get £50). You can even refer people with an existing account who don't use it as their main account as long as they go through the switching service. I assume you can only be referred once.

gazwaldo8 wrote: »

Do you mind sharing how you service all 7 with the SO and DD roundabout?
SO's obviously wont be so much of a problem - but I genuinely only have about 6 DDs so not enough for the 2 DDs required in many of the other accounts.

I wouldn't use SO, just setup the next account in the chain as a payee and log into each one. I don't have any other payees set up, so I can't make a mistake. Set up text alerts on TSB when you have more than £2000 and they will tell you when the interest is paid and then you move it around. The interest is daily so it's different each month, so you have to login to sweep that somewhere else anyway. If you use SO and they don't all get processed on the same day then you will lose interest. Using faster payments you know exactly what is going on.

For DD you should link paypal to each of your current accounts, you've instantly doubled the number of accounts you can open. Just having a DD setup doesn't count, but if you login to paypal every month and withdraw money via DD then it's no different to any other DD. You can put it back again afterwards. You will also make a few pence by setting up the DD as they make two deposits to confirm you have access to the account, but doing it for that reason alone is a little extreme :-).


I haven't used the Tesco saving account DD, but if that still works then you can open an account that needs 2 DD to be paid per month without having any recurring DD at all.

If you do use real direct debits then on accounts where you don't earn interest (Halifax for example) then you can just keep 0.01 in it and have the low balance alert set to 0.00 and high balance alert set to 1.00 & they will text you when you need to transfer money in to satisfy the direct debits going out and also when you receive anything so you can move it where it earns interest.

I do expect at some point the banks will crack down on people who are just gaming the system, so you may want to not be the worst offender so you aren't first in line.

Eco_Miser

phillw wrote: »

They appear to calculate interest at the end of the year by giving you 6% on the money deposited in month 1, 5.5% on the money deposited in month 2. The money deposited in month 12 only receives 0.5%.

Which is paying simple interest at a rate of 6% per year (or ½% per month) for the length of time the money is deposited.
When interest rates are quoted as a percentage without specifying a period, one year is assumed, NOT the period over which the money is deposited.