5% Savings Loophole

masonic

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...

If you want a rule of thumb, a better one is to take your £400 deposit and 6% interest rate and apply the calculation £400 x 6% x 6.5 = £156, which is somewhat more accurate and no more difficult to calculate.

The 6.5 comes from 78 / 12 or (12+11+...+2+1)/12, which represents the number of months each £400 deposit earns interest at 6% AER.

BookerTee

colsten wrote: »

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.

No one is interested in the AER, anyone who puts a regular amount in one of these account will get approx half the headline rate in interest on the total saved. The fact that it isnt technically correct is irrelevant.

masonic wrote: »

If you want a rule of thumb, a better one is to take your £400 deposit and 6% interest rate and apply the calculation £400 x 6% x 6.5 = £156, which is somewhat more accurate and no more difficult to calculate.

The 6.5 comes from 78 / 12 or (12+11+...+2+1)/12, which represents the number of months each £400 deposit earns interest at 6% AER.

It is more accurate but I disagree its just as simple. Your multiplier is 6.5 or half of 12 months. Its much more logical (therefore easier to remember) to half the interest rate over the 12 months.
But still useful if you can remember it.

colsten

BookerTee wrote: »

No one is interested in the AER, anyone who puts a regular amount in one of these account will get approx half the headline rate in interest on the total saved. The fact that it isnt technically correct is irrelevant.

People who understand AER and gross rates are interested, so you are wrong once more when stating that "no one is interested in the AER".

Insisting that "these account will get approx half the headline rate in interest on the total saved" is just plain wrong and stupid, and it is not irrelevant at all that it is incorrect.

jimjames

BookerTee wrote: »

No one is interested in the AER, anyone who puts a regular amount in one of these account will get approx half the headline rate in interest on the total saved. The fact that it isnt technically correct is irrelevant.

Totally wrong. I for one am interested in aer so your statement that no one is interested is factually wrong.

Much the same as your statement about the interest rate.

scrambledeggs

gazwaldo8 wrote: »

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

TSB are the only bank to have ever declined me, too. I actually wrote a very polite letter to the relevant department asking why, but never received a reply. Since then I've opened accounts with Halifax, Santander, Nationwide and Co-Op with no problems whatsoever.

masonic

BookerTee wrote: »

It is more accurate but I disagree its just as simple. Your multiplier is 6.5 or half of 12 months. Its much more logical (therefore easier to remember) to half the interest rate over the 12 months.
But still useful if you can remember it.

So it is easiest to remember just to half the interest rate over the 12 months. So if I have £20,000 in a Santander 123 account paying 3% AER, then there is no point in putting any of that money through a First Direct Regular Saver paying 6% AER because after halving the interest rate over the 12 months, the rates are the same, yes?

redux

masonic wrote: »

So it is easiest to remember just to half the interest rate over the 12 months. So if I have £20,000 in a Santander 123 account paying 3% AER, then there is no point in putting any of that money through a First Direct Regular Saver paying 6% AER because after halving the interest rate over the 12 months, the rates are the same, yes?

Wrong.

Some of your money will receive interest at 3%, and some at 6%, and none at less than 3%, so the average is not 3%.

The average of 3% for the 6% monthly saver is when compared to a baseline of no interest at all.

Edit: to put some actual numbers on this, if the First Direct account rises to £6000 (is it up to £500 a month, I haven't checked?) then that tranche of money will have spent half its time at 3%, half at 6%, average 4.5%, so an improvement of 1.5% of £6000, namely £90. Thought of the other way, an average of £3000 has made 3% extra, the same £90.

YorkshireBoy

redux wrote: »

Wrong.

Some of your money will receive interest at 3%, and some at 6%, and none at less than 3%, so the average is not 3%.

The average of 3% for the 6% monthly saver is when compared to a baseline of no interest at all.

I think you've missed the point masonic was making.

bigadaj

redux wrote: »

Wrong.

Some of your money will receive interest at 3%, and some at 6%, and none at less than 3%, so the average is not 3%.

The average of 3% for the 6% monthly saver is when compared to a baseline of no interest at all.

Edit: to put some actual numbers on this, if the First Direct account rises to £6000 (is it up to £500 a month, I haven't checked?) then that tranche of money will have spent half its time at 3%, half at 6%, average 4.5%, so an improvement of 1.5% of £6000, namely £90. Thought of the other way, an average of £3000 has made 3% extra, the same £90.

Are you American by any chance?

redux

YorkshireBoy wrote: »

I think you've missed the point masonic was making.

I don't think so. As written it says there is no point in transferring from a 3% account to a 6% account.

If the Santander was full of £20,000 all the time, and the money reaching the First Direct was further money originating from a zero interest account, then it would be true to say leave the Santander, but that isn't the actual wording there.

As it is, there would be £90 extra interest possible (see my edit above).