first direct regular saver - 6%

ChesterDog

Let's say then the maximum ROI will be just over 3%, while the gross interest rate is 6% per annum.

masonic

zagfles wrote: »

Maybe it's because that account "matures", ie ends, whereas the regular saver is converted to a different account type.Right - and the FD regular saver, like the Nationwide regular saver ISA, is coverted to a different account with a lower rate, which is why Nationwide quote 2.33% AER on their regular saver ISA based on deposits now. Deposits later will have a lower AER, and likewise deposits later into the FD account will have a lower AER using the same definition.

But the FD regular saver *does* mature (end). The proceeds are paid into a FD savings account - one is automatically opened for you if you don't have one, but they pay it into your existing account if you have one (which you will if you use the regular saver over multiple years). Hence the AER is constant throughout the term of the regular saver until maturity.

Aside: I can recall one of the first vigourous discussions going on around the time I joined in 2005 being around regular savers, rates of interest and returns - I wonder if we'll ever lay this issue to rest

masonic

ChesterDog wrote: »

Let's say then the maximum ROI will be just over 3%, while the gross interest rate is 6% per annum.

The _maximum_ ROI is just over 3% plus whatever return you can get on the cash before it gets contributed (assuming you have a lump sum).

Edit: and just to be clear why I say that is to head of the question, why would anyone use a regular saver with ROI of around 3% when I could put the money in a current account and earn 5%?

Gromitt

ChesterDog wrote: »

Let's say then the maximum ROI will be just over 3%, while the gross interest rate is 6% per annum.

OK, but before other people start getting confused and comparing this with normal savings accounts. If you put that same £300 a month into a normal 3% savings account, you would get 1.62% ROI, ie, exactly half of the ROI you get in this 6% account.

Also, like I said above, if you drip feed the regular saver from a 3% account, you can increase your ROI to 4.61%.

Archi_Bald

masonic wrote: »

Edit: and just to be clear why I say that is to head of the question, why would anyone use a regular saver with ROI of around 3% when I could put the money in a current account and earn 5%?

You would probably not do an "either or", but combine the two, because you can squeeze out a smidgen more that way. If you dripfeed £3600 in lots of £300 a month from a couple of 5% AER TSB accounts into the 6% AER FD Reg Saver, your overall taxable return will push 5.5%.

masonic

Archi_Bald wrote: »

You would probably not do an "either or", but combine the two, because you can squeeze out a smidgen more that way. If you dripfeed £3600 in lots of £300 a month from a couple of 5% AER TSB accounts into the 6% AER FD Reg Saver, your overall taxable return will push 5.5%.

That's exactly the point I was trying to make. Unlike a conventional savings account where all of the money is deployed up front, there is no opportunity cost associated with a lump sum not yet added to a regular savings account, so a holistic approach needs to be taken when calculating ROI.

zagfles

Archi_Bald wrote: »

Both, the gross rate and the AER of the First Direct Reg Saver are 6%. Not more, not less. The reason both rates are the same is that the same rate of interest applies throughout the duration of the account, and is paid just once, upon maturity. So there is no compounding.

It's nothing to do with compounding. Both accounts pay annually so there is no compounding in either case.

There are a couple of reasons why the Nationwide AER and gross rate that you keep quoting are different. Firstly, Nationwide pay monthly interest on their Regular Saver ISA.

Wrong. I've had one for 4 months and have had no interest. They pay interest annually (31st March IIRC).

Secondly, the timescale they have chosen for their AER calculation spans two different interest rates. To quote from the Nationwide site:.

Which is the point. When you make your second monthly deposit into the FD account, you'll get 11 months at the 6% rate and 1 month at a lower rate (if you do nothing and they convert the account), so using the same definition as NW, the AER will be lower.

Equally the AER for later deposits into the NW account will also be lower than the AER they now quote.

zagfles

masonic wrote: »

The _maximum_ ROI is just over 3% plus whatever return you can get on the cash before it gets contributed (assuming you have a lump sum).

Actually the maximum ROI is just under 6% (if you only have £311 to deposit, deposit £300 the first month then reduce to £1 a month!). OK silly scenario....

zagfles

masonic wrote: »

But the FD regular saver *does* mature (end). The proceeds are paid into a FD savings account - one is automatically opened for you if you don't have one, but they pay it into your existing account if you have one (which you will if you use the regular saver over multiple years). Hence the AER is constant throughout the term of the regular saver until maturity.

That makes sense - so it's a technicality as to whether the account is closed and money transferred, or the account is converted...

Aside: I can recall one of the first vigourous discussions going on around the time I joined in 2005 being around regular savers, rates of interest and returns - I wonder if we'll ever lay this issue to rest

Yes, the Halifax AER of 6.05% on an account which paid 6% annually was a cracker. Honest.

roxy28

I was looking at this account on FD website, and if i read it correctly it says. If you put in £300 per month for 12months then after tax = £93 net. Someone may confirm this or not if its right.