5% Savings Loophole

Vortigern

phillw wrote: »

Current accounts do daily interest, first directs regular saver uses calendar months.

That's just one of many things you've got wrong!

Quoting from first direct's website re: their regular saver:-

If you saved £300 per month for 12 months, you'd receive returns of approximately £117 gross (£93 net) in interest after 12 months. Interest is calculated daily and paid on the 12 month anniversary after account opening

Firstly note the word daily.

Secondly, they don't use calendar months. If your first payment is on the 10th of the month, all payments will be 10th of the month, except where the 10th is not a working day. This can make some 'months' longer than 31 days, or shorter than 30.

Thirdly consider why they say approximately £117.
It's because some months are longer than others and some of your monthly deposits will be delayed by weekends and bank holidays.

Finally, this not the regular savers thread. Please stay on topic.

:wall:

saintalan

masonic wrote: »

I believe you have it right, but aren't you planning to scrutinise the T&Cs of each account so that you don't have to rely on what an anonymous stranger tells you?

Thanks yes I have but just double checking and hopefully for others benefit too.

Cheers

Alan
PS You are not really an anonymous stranger are you?

Chadsman

This reminds me of an episode of 'I'm Sorry I havn't a Clue' where a Mrs Trellis from North Wales had written in asking for the rules of Mornington Crescent so Humph said he was going to explain where upon there was lots of interference for ten seconds, the interference stopped just as Humph said "So it really is as simple as that."

phillw

masonic wrote: »

You seem to be completely overlooking the fact that if you are paying money into a RS in month 10 or 11 or 12, the money is available again in 1, 2 or 3 months to earn interest elsewhere, so if you are doing this sort of calculation, you need to look over the same time period.

I am looking over the same period. I don't understand why you think I'm not. I'm not saying the 3.25% return you get is equivalent to the interest you'd get leaving it in a 3% AER current account, if you think I am then you didn't read any of the examples I gave.

masonic wrote: »

So, say you are considering whether you will get a better return from paying into a 6% regular saver with 2 months to go or a 5% current account, well the monthly returns are essentially proportional, 6% AER gives you more interest than 5% AER over 1, 2, 3 or more months.

I know. My examples clearly show that I understand that. I went to great lengths pointing out that the regular saver gets you 0.5% a month return and a 3% current account gets you 0.25% a month return.

However there are circumstances when you need to compare against other forms of investments, like if you only have £300 and your mate needs to borrow £275 but he'll repay you £285 next month. If you do that in month 1 of your regular saver then it's a bad move, if you do it in month 12 then you're only losing £1 interest.


What about fully funding a regular saver for six months and the dropping to the minimum and opening a second regular saver? How would you go about comparing that?


If you think of a regular saver as a set of 12 investments each with a decreasing return and length then it's much simpler to evaluate like for like.

If you're just thinking about a current account or RS then the one with the higher AER wins, but if you actually want to know how much by then remembering some percentages is easier than crunching the numbers for 12 months interest.

I was aiming at disproving the "you only get half the interest rate", because the return is actually slightly more than half and also show that people who compared it to current account AER were missing the point. But you seem to have thought I was saying those things.

gazwaldo8

if you only have £300 and your mate needs to borrow £275 but he'll repay you £285 next month. If you do that in month 1 of your regular saver then it's a bad move, if you do it in month 12 then you're only losing £1 interest. If you think of a regular saver as a set of 12 investments with a decreasing return then it's much simpler to evaluate like for like.

Aha! - now that does make sense!!

gazwaldo8

Just as I was thinking I was on the road to setting up my own loophole - hurdle 2 gets knocked down!

Hurdle1 - Santander 123
accepted and am waiting for the account details to be sent out so I can put my £20k into there.

Hurdle 2 - TSB ac:-

We're sorry, but your application has been unsuccessful

Thank you for applying for a TSB current account.

Unfortunately, based on the information you've provided, you haven't met our account opening requirements at this time. However, it may be worthwhile reapplying in the future.

Confused - exactly same details as Santander - not asked for any overdraft on either!
Dont they want my money??

Any ideas why they have declined me? - Ive never been declined for any account before!!

masonic

phillw wrote: »

I am looking over the same period. I don't understand why you think I'm not. I'm not saying the 3.25% return you get is equivalent to the interest you'd get leaving it in a 3% AER current account, if you think I am then you didn't read any of the examples I gave.

I didn't take issue with any of the examples you gave, but I did take issue with the conclusions that you drew from those examples. It probably didn't help that you were conflating monthly returns and interest rates, which is what colsten picked you up on. Any confusion seems to have stemmed from there. But I'm happy to admit that I did only skim read your earlier 3 page post from the 10th June, and of course I didn't read any of the extra things you edited into your more recent post long after I had replied, so you'll just have to forgive me for those things.

I know. My examples clearly show that I understand that.

Well it is obviously not clear that you understand the AER of a 6% AER regular saver can simply be compared with the 5% AER current account over the same time period as you edited your post to add "AER on regular savings accounts are only useful for comparing against other regular savings accounts".

What about fully funding a regular saver for six months and the dropping to the minimum and opening a second regular saver? How would you go about comparing that?

If the AER on the second RS is at least as high as the first, then it is worth it. If the first regular saver is insufficient for your needs and you don't have enough money to fulfil the minimum funding for the second, then you would need to to judge it on a case by case basis.

If you think of a regular saver as a set of 12 investments each with a decreasing return and length then it's much simpler to evaluate like for like.

If you're just thinking about a current account or RS then the one with the higher AER wins, but if you actually want to know how much by then remembering some percentages is easier than crunching the numbers for 12 months interest.

It's much simpler for me to perform a simple calculation, rather than learning a set of percentages that will be different for each different interest rate being considered.

I was aiming at disproving the "you only get half the interest rate", because the return is actually slightly more than half and also show that people who compared it to current account AER were missing the point. But you seem to have thought I was saying those things.

It's more than "slightly more than half", it's the whole interest rate, and this is the main point others are taking issue with about your posts.

masonic

gazwaldo8 wrote: »

if you only have £300 and your mate needs to borrow £275 but he'll repay you £285 next month. If you do that in month 1 of your regular saver then it's a bad move, if you do it in month 12 then you're only losing £1 interest. If you think of a regular saver as a set of 12 investments with a decreasing return then it's much simpler to evaluate like for like.

Aha! - now that does make sense!!

Except the First Direct RS, for example, allows you to later pay in extra to cover months where you did not pay in the full £300, so in fact it makes no difference in that case.

"if you don't make the maximum subscription in any one month, just carry it forward to future months"

BookerTee

colsten wrote: »

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.

If you save £400 a month for a year at 6% the interest would £154. (According to MSE Regular savings Calculator)

If you multiply the total deposited, £4800 by 3% you get £144

So the simple metric of halving the headline interest rate is an easy, valid rule of thumb...

colsten

BookerTee wrote: »

If you save £400 a month for a year at 6% the interest would £154. (According to MSE Regular savings Calculator)

If you multiply the total deposited, £4800 by 3% you get £144

So the simple metric of halving the headline interest rate is an easy, valid rule of thumb...

A valid rule of thumb for calculating the approximate return, yes. As has been posted already. Return isn't the same as AER and gross rate. The AER and gross interest rate of a regular savings account is totally and utterly unaffected by the return, contrary to what some people are claiming now and then. Return is a sum of money, AER and gross rates are the %age rates used in calculating the return, along with the daily balance over 365 days.

Instead of punting the utterly ridiculous idea that regular savers only pay half the headline interest rate, people could just link to the MSE Regular Savings article.