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5% Savings Loophole
Comments
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The average of 3% for the 6% monthly saver is when compared to a baseline of no interest at all.
You were doing well until this point. The AER of the currently available FD Regular Saver never becomes 3%, not on average or any other way. Its interest rate is 6% AER and gross, fixed. End of.
I will post this for as long as anyone posts the nonsense about halved interest rates.0 -
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You were doing well until this point. The AER of the currently available FD Regular Saver never becomes 3%, not on average or any other way. Its interest rate is 6% AER and gross, fixed. End of.
I will post this for as long as anyone posts the nonsense about halved interest rates.
I didn't say any nonsense about halved interest rates.
If some money spends some time at one interest rate and some other money at another rate, the overall effect will be a weighted average.
If there is one particular case of equal monthly payments, starting from an account with zero interest, then some will find it convenient merely for mental arithmetic purposes that the average effect, and I repeat the word effect, is half the headline rate, but I think we all agree that the bank isn't doing that simplistic calculation and paying half on that basis. Other people's accounts will have varying amounts per month, or sourced from accounts that aren't zero interest, and they might need more calculation if they want to check things.
I really don't understand why this ridiculous argument has so much fuel in it, with for instance a rhetorical inversion built on to one question mark that as someone points out above I (and others perhaps) might not have spotted or properly interpreted at first reading.0 -
I don't see how you reach that idea.I stand by the point that the way to look at the interest received from changing balances between accounts is the average rate, and the notional halving is only the special case average when one rate is zero.
Furthermore, when comparing returns from different accounts, one has to do so on a like for like basis. One cannot simply apply a correcting factor to the returns from the regular saver account and then calculate returns from the non-RS on a different basis. If it is possible to convince someone of this, then the laws of algebra allow the simplification of the comparison back to simply comparing headline AER rates. It was perhaps rather optimistic of me, but I thought I might be able to lead some to the conclusion that the AER is a useful tool for comparing savings accounts, including regular savers, on a like for like basis in the majority of situations. No 'rules of thumb' needed.0 -
The discussions about the interest on Regular Savers accounts have been going on and on many times in this MSE forum. What I have seen so far is that the misleading or misinterpretation comments typically come from people:
- Who just start to play the game?
- The people who are too naïve to think that the bank will pay them interest for the money they even have not put into saving account. Use the same analogy with your mortgage. When you take a capital repayment mortgage say 300k you will be happy if you pay the interest initially on the first month based on this 300k. But after several years you will definitely do not want to pay interest based on 300k as your loan is now decreasing in value.
Please inform the forum for saving pruposes where you could get a better option than to use high interest current account as a basis and then uplift it to a higher interest by drip feeding it from this specialist current account to a higher interest regular saver repeat and repeat this cycle as many as you possibly could.
For this people all I could say is that some people here might have knowledge than you might think and it might be more than you so do not critizise before you know better as you might embarace yourself ...0 -
Just to add my ha'penn'orth; the problem, semantically, with saying "half the rate" even as a rule of thumb, is that a rate is measurement dependent on time; consider rate of climb. The rule of thumb is more properly that on average your money has only been in the account for about half a year; mathematically it makes no difference, but logically it shows both the effect and the reason for that effect.I am not a financial advisor or other expert. All posts are purely my thoughts at the time for discussion, not advice. Bear in mind, even most of this disclaimer is ripped off another forum user. Please check out the facts first before doing anything.0
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Just to add my ha'penn'orth; the problem, semantically, with saying "half the rate" even as a rule of thumb, is that a rate is measurement dependent on time; consider rate of climb. The rule of thumb is more properly that on average your money has only been in the account for about half a year; mathematically it makes no difference, but logically it shows both the effect and the reason for that effect.
The problem is that a lot of these accounts are a fixed one year term, making that approach somewhat illogical. But you are right, its approximately half the interest you might have expected from the headline rate i.e 3% on a 6% account or 2% on a 4% account. The maths is very clear, unfortunately some people still think they can order the tide back out.0 -
The problem is that a lot of these accounts are a fixed one year term, making that approach somewhat illogical. But you are right, its approximately half the interest you might have expected from the headline rate i.e 3% on a 6% account or 2% on a 4% account. The maths is very clear, unfortunately some people still think they can order the tide back out.
Just because you can make a formula work doesn't mean it's the correct way of showing it.
Equally say that the rate is 6% (which it is) and divide the return by 2 as you only have half the money in on average over the 12 months.
Same result but you don't have the incorrect statement that the rate is not 6%. You are confusing the return with the rate. The return might be equivalent to 3% of the final sum but the rate is 6%.
You still haven't answered the previous post either as you're still claiming the rate is 3%. I'll repeat if it helps.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?Remember the saying: if it looks too good to be true it almost certainly is.0 -
The problem is that a lot of these accounts are a fixed one year term, making that approach somewhat illogical. But you are right, its approximately half the interest you might have expected from the headline rate i.e 3% on a 6% account or 2% on a 4% account. The maths is very clear, unfortunately some people still think they can order the tide back out.
If you are not in a position to commit your savings for any prolonged period of time, savings interest rates will be pretty much irrelevant for you.But you are right, its approximately half the interest you might have expected from the headline rate i.e 3% on a 6% account or 2% on a 4% account.0
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