5% Savings Loophole

BookerTee

jimjames wrote: »

You still haven't answered the previous post either as you're still claiming the rate is 3%. I'll repeat if it helps.

No problem, most people probably save x amount a month from income into a regular savings account. However some move the money from an existing account. halving the headline still applies; if you transfer money from a 3% account into a regular saver at 6% you half both and add them so the total interest is 1.5+3=4.5% of the total amount deposited. Its a very simple rule of thumb that gives 95% accurate predictions of return. Which is all people want to know.

colsten

BookerTee wrote: »

halving the headline still applies;

Halving the headline interest rate never applies as the AER on a savings account will always be the AER on a savings account. For the same reasons that the APR on a loan will always be the APR on a loan.

You can try as much as you like but AER is AER, and always will be AER. It will never be half, or any fraction of anything.

masonic

BookerTee wrote: »

if you transfer money from a 3% account into a regular saver at 6% you half both and add them so the total interest is 1.5+3=4.5% of the total amount deposited.

Why do you think it is necessary to halve the rates before adding them together, rather than adding them together and then halving the resultant return figure?

(a/2) + (b/2) = (a+b)/2

Not only does this involve 2 operations rather than 3, but it also avoids erroneously treating either interest rate as being lower than it actually is. You are just taking an average, after all. Few people would consider that taking an average would mean that the collection of numbers being averaged should be treated as really being half, or a third, or some other fraction of their stated value.

Also, there is absolutely no need to halve anything to determine whether a > b.

Chadsman

Some people understand maths and know they understand maths.
Some people think they understand maths but don't understand maths.
Some people don't understand maths and know they don't understand maths.
Some people are Donald Rumsfeld but will deny it years later.

redux

BookerTee wrote: »

No problem, most people probably save x amount a month from income into a regular savings account. However some move the money from an existing account. halving the headline still applies; if you transfer money from a 3% account into a regular saver at 6% you half both and add them so the total interest is 1.5+3=4.5% of the total amount deposited. Its a very simple rule of thumb that gives 95% accurate predictions of return. Which is all people want to know.

I don't think there's much point in such a notion. It's too simplistic in only applying to the specific case of regular transfer of the same amount each month, and all the money being transferred over the time span.

In real life, someone might still have some in the originating account by the end, and/or have made varying payments. Someone who initially pays £500 a month from a 3% to a 6% account, but drops to only £25 a month after 6 months, will have done better than someone with the same accounts who transferred the same in the year but started low and then increased the monthly transfers.

ceredigion

Chadsman wrote: »

Some people understand maths and know they understand maths.
Some people think they understand maths but don't understand maths.
Some people don't understand maths and know they don't understand maths.
Some people are Donald Rumsfeld but will deny it years later.

I am most definitely line three, but can be pretty confident that 6% is > 3%

saintalan

I try to look at things from both sides, does this mean I can now claim 6% from Santander & a whopping 10% from TSB.

WOW I love this site:beer:

masonic

saintalan wrote: »

I try to look at things from both sides, does this mean I can now claim 6% from Santander & a whopping 10% from TSB.

I can remember the days of 6% current accounts and 10% regular savers, but neither Santander nor TSB were around back then.

saintalan

masonic wrote: »

I can remember the days of 6% current accounts and 10% regular savers, but neither Santander nor TSB were around back then.

Me too, just that I had no money then:(

TomJ

BookerTee wrote: »

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.

No that's not a problem with the approach. The only way it makes sense to say there's a 3% rate on an account paying 6% per annum is to say there's a 3% per half year rate. The only reason you might have expected more is a failure to understand that the final figure is not the amount on which interest is being paid. Rather than say the rate is half of what it is, which is untrue, it makes sense to say that on an account into which the same amount is paid each month the average balance is about half the final balance, which is more or less true. The fact that you can get the same result arithmetically by applying half the annual rate to the final balance doesn't make "the interest rate is halved" mathematically true; to say so is misleading and demonstrates a lack of understanding of what the terms in the equations mean.