Savings Loophole Example

twister1

The loophole is shown in this site by using an example of £1000 switching between 3 bank accounts each month. It then says up £19000 can earn 4%. How is the £19000 arrived at?

YorkshireBoy

Presumably they're including joint accounts?...but quoting a sole figure!

2 x Club Lloyds (£10K)
2 x Nationwide FlexDirect (£5K)
2 x TSB Plus (£4K)

It's a bit, er, untidy isn't it?

Perhaps better to say that one person could get over 4% on £9.5K, but if there are two of you, then you could get over 4% on a total of £28.5K by opening joint accounts as well as your sole accounts.

Still, who am I to question the quality of research/writing/editing of the MSE articles?

bowlhead99

They were talking about just using the Nationwide, TSB and Tesco accounts as those are the ones that don't need any direct debits or further messing around whatsoever and just need you to cycle the money through to meet minimum payin and payout requirements to make your system work as a savings platform.

So NW 5k, TSB 4k, Tesco 6k assuming you have are able to have a single and joint account at each. This is only 15k.

The headline was 19k because up until only a week ago, TSB would allow you to open up a second account (ie you could have two single accounts in you own name and two joint accounts). So TSB gave you access to 8k total not 4k total.

So, the headline amount for that network of banks just being used as savings accounts without any messing about with extra direct debits, should really have been dropped down from £19k to £15k.

But as the start of the 'money go round' is "transfer £x from your main current account", it can be presumed that you already have a main current account where you are receiving your salary and paying direct debits. They are just trying to show you what else you can do with the spare money without needing to transfer your main banking activities or faff around with new or switched direct debits. Your main bank might be Lloyds with 5k in it (earning 4%) or Santander with 20k in it (earning 3%). And obviously if you have a partner, you could each have a main current account and share a joint account so the 5k is 15k and the 20k is 60k.

On that article, MSE give you a convenient table about exactly what deals are available for which accounts, and give you some good tips on how easy it is to move money around all of the banks to maximise your returns. The general concept of using a 'current account' which has high interest but requires a certain hurdle of minimum payments to encourage you to use it as a main account, while instead you use it as a savings account and immediately withdraw the cash you deposited, is the 'loophole', but the specific way you choose to run your savings and how much ready cash you actually have or want, will be different for everyone.

So it's a bit harsh to accuse MSE of shoddy quality editorial if they forget to update 19k to 15k. Even if the journalism does sometimes leave a little to be desired because they try to simplify things for their massive target audience. They already told you there is tens of thousands of extra space in other good accounts if you can be bothered to look for them and set up direct debits, and it's not like you've paid them anything and they've given you duff advice.

twister1

OK. A few basic questions: taking the example given of £1000 initially deposited, does the this same amount just keep going in and out on say a 5 day period and how is interest calculated on these accounts. If on a daily basis, then with switching on 3 accounts over say a 4 or 5 day period, surely means that the money is out of a particular account for possibly around 75% of the time. Secondly, what does min' of £500 max' £2000 mean for an account?

YorkshireBoy

twister1 wrote: »

OK. A few basic questions: taking the example given of £1000 initially deposited, does the this same amount just keep going in and out on say a 5 day period and how is interest calculated on these accounts. If on a daily basis, then with switching on 3 accounts over say a 4 or 5 day period, surely means that the money is out of a particular account for possibly around 75% of the time.

Yes it does. As is often the case with MSE articles, they raise more questions than they answer.


If all accounts are full, then SOs on the same day are fine. However, you may feel you'd rather make the requisite transfers yourself manually each month.

Secondly, what does min' of £500 max' £2000 mean for an account?

You've lost me! Care to re-word your question?

ceredigion

twister1 wrote: »

OK. A few basic questions: taking the example given of £1000 initially deposited, does the this same amount just keep going in and out on say a 5 day period and how is interest calculated on these accounts. If on a daily basis, then with switching on 3 accounts over say a 4 or 5 day period, surely means that the money is out of a particular account for possibly around 75% of the time. Secondly, what does min' of £500 max' £2000 mean for an account?

The £1000 is only really to satisfy the minimum monthly deposit criteria. Yes, you only get interest on what is in an account on that day. If you only had £1000 , you can generate something like 12%, throwing it between TSB and Halifax. Unless you have many thousands , you probably don't need more than a small handful of accounts.

twister1

As I understand this loophole, these accounts have min' monthly pay-in, TSB £500 and max' to receive interest, TSB £2000 (for TSB, amounts above £2000 earn nothing). So does the loophole keep putting in and taking out a fixed amount, say the TSB max' over a year and while this £2000 is out, it is in another account? Also, I still have the problem of the £2000 being only in the TSB account for about 20% of the time to earn the 5%. Or does it mean that while it is out of the TSB account and not earning interest, it is in another account and earning interest?

Archi_Bald

twister1 wrote: »

Also, I still have the problem of the £2000 being only in the TSB account for about 20% of the time to earn the 5%.

I think you are probably lost somewhere. As a general rule, you do not get interest on money that is not in an account. Interest gets calculated daily, at the end of the day. If you have £2,000 in the account for 10 days and £0 for 20 days, you get interest on the £2,000 for 10 days. If you take out £2,000 sometime during the day but put it back in in the early evening, you still get interest for it on that day.

The £2,000 will be in the TSB account for as long as you keep it in there. Can you explain why you think it's only int there for 20% of the time?

ceredigion

:wall:


To reiterate you can only get interest on money you all ready own

crispy_chris

The loophole isn't that you can own £1,000 and get interest payments as though you owned £19,000.

colsten

There is actually no loophole at all. Just current accounts that pay better interest than savings accounts, on limited balances.