Tsb 555 offer

tammy66

Can anyone help with this question about the Tsb 555 offer


If I deposit £50 per month in the regular saver account at 5% for the 12 month period of the offer what would my total amount be at the end of the 12 month offer?
I have asked TSB customer services and they are unable to answer this question

chiefnoodle

Well you shouldn't really work it out like this, but to keep things simple and since its fairly small amounts, will be out by a very small amount:

5% of £50 = £2.50.
That's for a whole year, for just one month its (approx) a twelfth of this. I.e. 20.83p.
So in the first month you earn this princely sum once, in the twelfth month you earn this 12 times (as you'll have 12 times as much), comes to 12 x £0.2083 = £2.50.
So your interest varies from £0.20 to £2.50.
The average interest is halfway between these two numbers, or £1.35. So you can consider that you earn this fixed amount every month instead of an increasing amount every month.
So over 12 months you'll earn 12 x £1.35 = £16.25.

[without deducting tax. also it will actually be slightly different because of compound interest]

puk999

Does this link help? http://www.moneysavingexpert.com/savings/best-regular-savings-accounts#calculator

Westie983

£50 a month in a regular saver paying 5% will give you an approx return of £13 if you pay tax at basic rate, or approx £16 if a non tax payer, at the end of 12 months.

this is because you only get the 5% on the first payment of £50 as the corresponding payments are only in the account for 11 months, 10 months etc.

explained more in this link

Regular Savings accounts.

common misconception, found this on the above link, which explains why the confusion.

"Mr Matt Mattics and his £3,000 savings"

Matt has saved a total of £3,000 in a regular savings account paying 10% interest over a year, and is a non-taxpayer.

What Matt expects to earn? His simple sum works out that he's put £3,000 in at 10% therefore he should earn £300 in interest.

Why is this wrong? Matt only had £3,000 in there for the last month; it took a year to build up to that amount. You only earn interest on money in the account. So after the first month he was earning the 10% on just £250, half way through the year he was earning it on £1,500.

How Matt should work it out? Over the year, his average balance was roughly half the £3,000, in other words £1,500... so Matt should expect to earn around 10% of £1,500 over the year, which is £150.

Zanderman

chiefnoodle wrote: »

Well you shouldn't really work it out like this, but to keep things simple and since its fairly small amounts, will be out by a very small amount:

5% of £50 = £2.50
So in the first month you earn this princely sum once, in the twelfth month you earn this 12 times (as you'll have 12 times as much), comes to 12 x £2.50 = £30.
So your interest varies from £2.50 to £30.
The average interest is halfway between these two numbers, or £16.25. So you can consider that you earn this fixed amount every month instead of an increasing amount every month.
So over 12 months you'll earn 12 x £16.25 = £195.

[it will actually be a little bit more because of compound interest]

No you really really shouldn't work it out like this, as your answer is not only wrong, it's wrong by an order of magnitude.

You earn 1/12 of £2.50 in the first month! Not £2.50!!!

marathonic

It should be noted that interest received on an account opened today will be received after April 2016, meaning no tax is payable.

The answer is £16.25, with no compound interest considering interest is added annually - so you'd end up with £616.25

Herbalus

Chiefnoodle, you should probably delete your post, as it is really most unhelpful for anybody who struggles to understand regular savers.

You've calculated a figure of £195 interest when the OP will be saving a total of £600 (his 12x monthly £50). Clearly you can see that a nearly £200 return on £600 is around 30% interest, and the OP doesn't even have £600 in there for the whole year!

chiefnoodle

whoops very embarrassing... have edited original post

alanq

TSB Web Site says £250 pcm would earn £81.02. So £50 pcm would earn c £16.20. So you would get back c £616.20 in total.

http://www.tsb.co.uk/news-releases/tsb-launches-555/

Ballard

If you just want a very rough idea of the interest then take the average balance at £300 and calculate 5% of that. In this case it'd give £15 (pre-tax)

I should point out that I am fully aware that this is nowhere near an accurate way of calculating the interest and that £300 wouldn't be the actual average balance but I imagine that the OP doesn't need it to be precise and is just after an idea of whether it's worth them bothering.

FreddieFrugal

Yeh whoever said c £13 for a basic rate tax payer was correct.

The exact amount is £13.16.

It's easiest to work this out using a spreadsheet.

A1 = £50 x ((4%/12)+1))
A2 = (A1 + £50) x ((4%/12)+1))
A3 = (A2 + £50) x ((4%/12)+1))

Etc. Until you get to 12 months

I set up a spreadsheet to work out interest on mortgage, and to predict the balance change over the life of it, per month. And impact of overpayments. (Gives a much more accurate picture than the MSE overpayment calculator)

Did same thing with savings, so I know (assuming nothing disastrous happens) how much money we'll have in the bank in 6 years time.

Good to do seperate cells for the interest rate so that you can vary them and see what affect it has.

May not be worth going to the bother for £13.16 but if you have lots of accounts and a mortgage and you're looking into savings I can well recommend doing a spreadsheet. Will save time in future when you just want to check something like the question you asked.