first direct regular saver - 6%

Archi_Bald

masonic wrote: »

Most savings accounts operate this way in that you don't earn interest on money that isn't yet in the account (there are one or two exceptions).

What are the exceptions please?

masonic

ChesterDog wrote: »

Of course. Maybe it's just my mindset, but I think of how much money will I earn rather than, what is the stated rate of earning. :-)

It is surprising that quite a few people who would not normally be puzzled by something like this get led astray thinking along the lines... 'I'm going to drip-feed this £3,600 into the account over 12 months and at the end of the term collect 12 months interest on the final balance of £3,600' (if only). Then they realise their mistake and go around with the best intentions warning people that the interest rate is misleading or that you don't get the same rate on all of the money, but this simply perpetuates the myth that there is something different going on, when in fact the interest rate mechanics are exactly the same as anyone would ordinarily expect.

masonic

Archi_Bald wrote: »

What are the exceptions please?

If you're really interested in the details, send a PM to planteria, but it should suffice to say they involve Friendly Societies.

Archi_Bald

Ah, I have no interest in Friendly Society savings plans because I fail to see their value because none could be expressed in the various threads planteria launched about them over time. Thanks anyway.

planteria

not another myth being perpetuated, surely:D all these threads i have started and countless pms to the untouchables:wave:

yes, Regular Savers like these are exactly as stated: you earn the rate on the sum you have invested. which, in fairness to First Direct et al, is all we can reasonably expect. their scope is limited, but i think they are useful.

Regular Savings Plans like the one i have with a friendly society are a different beast. a return on money not yet invested is very unusual, but you Do need to commit to invest a regular amount for the long term.

zagfles

Archi_Bald wrote: »

That would be because you did not have the total sum in the account all year long. You will earn precisely 6% AER in the FD Regular Saver.

It's 6%pa, but I'm not sure it's 6% AER except on the first month's deposit.

AER is usually defined wrt how much interest the money would earn in a year. In the case of the FD regular saver, 12 months after opening the account gets converted to an account with a much lower interest rate. So a deposit a month after opening would earn 6%pa for 11 months and a lower rate for the last month.

For instance, with the Nationwide regular saver ISA, they quote a rate of 2.59%pa but an AER of 2.33%, based on the fact that money deposited now will earn 2.59% until April then earn 1.5%.

So using the same definition as Nationwide, the AER FD quote only applies to the first month's deposit. So the PP is quite right to highlight this.

Gromitt

ChesterDog wrote: »

Of course. Maybe it's just my mindset, but I think of how much money will I earn rather than, what is the stated rate of earning. :-)

If you can only afford to put away £300 per month and spend the rest, then the FDRS is still the best regardless of how you look at it.

If you have the £3600 just sitting there doing nothing then you'll be getting at least some interest on it. If you are getting 3% on that money then you'll get £166 after a year, so about 4.61% return after 12 months.

jimjames

zagfles wrote: »

It's 6%pa, but I'm not sure it's 6% AER except on the first month's deposit.

It's still 6% AER.

It's the same as the 5% rate on a TSB account if I pay in £500 and then top it up to £2000 in the last month of the year. The rate is still 5% regardless of what money I had in the account.

masonic

zagfles wrote: »

It's 6%pa, but I'm not sure it's 6% AER except on the first month's deposit.

AER is usually defined wrt how much interest the money would earn in a year. In the case of the FD regular saver, 12 months after opening the account gets converted to an account with a much lower interest rate. So a deposit a month after opening would earn 6%pa for 11 months and a lower rate for the last month.

For instance, with the Nationwide regular saver ISA, they quote a rate of 2.59%pa but an AER of 2.33%, based on the fact that money deposited now will earn 2.59% until April then earn 1.5%.

So using the same definition as Nationwide, the AER FD quote only applies to the first month's deposit. So the PP is quite right to highlight this.

By that logic a 6 month fixed rate account paying interest at maturity would have to quote half the AER vs the gross rate, which would be wrong (take Nationwide as an example, they would have to advertise their 6 month bond as being 1.1% Gross, 0.55% AER). If the account is closed within 12 months of you making the deposit, that shouldn't affect AER - only a rate drop where the money continues to be held in the account would do so.

ChesterDog

Gromitt wrote: »

If you can only afford to put away £300 per month and spend the rest, then the FDRS is still the best regardless of how you look at it.

If you have the £3600 just sitting there doing nothing then you'll be getting at least some interest on it. If you are getting 3% on that money then you'll get £166 after a year, so about 4.61% return after 12 months.

Quite so, Gromitt. I think some may feel I have missed something obvious here that I have not. :-)