TSB interest query

freezspirit

I was talking to a friend about the the amount of interest from having £2000 in a current account all year compared to having a monthly saver and putting £250 each month. He reckons both would give the same amount of interest of around £80.

Can anyone show if he's right.I'm sure he's wrong as one is paid monthly on the full £2000 and the other goes up £250 each month where the last month will have £3000. Both @ 5%

colsten

It all depends on how much you have in which account when.

Having £2K in the Current Plus for 12 months yields £97.80 gross.

Paying the maximum into the TSB Regular Saver each month and leaving the money in there yields £80.64 after 12 months.

If you are able to drip-feed from a 3% account that starts at £3,000 and depletes by £250 a month, the total yield after a year will be £122 gross.

YorkshireBoy

Current account:
£2,000 x 4.89% = £97.80

Regular saver:
(12 x £250) x 5% / 12 x 6.5 = £81.25

But...

Assume you had already filled the Plus account, and had the £3,000 for the regular saver in a 3% paying account, the return from drip-feeding the TSB monthly saver from the 3% account is...

(12 x £250) x 5% / 12 x 6.5) + (12 x £250) x 3% / 12 x 5.5) = £122.50

This compares with the £90 you'd get from leaving the cash in the 3% account, so your 'gain' is £32.50

You may be wondering what the 6.5 and 5.5 figures are above?...

With a regular saver your first payment is in the account for a full year, ie 12/12ths of a year...the second for eleven months, ie 11/12ths of a year. So...

12/12 + 11/12 + 10/12......+ 2/12 + 1/12 = 78/12 = 6.5

The 5.5 figure is simply 12 - 6.5 = 5.5

KGriff

Unless my maths is a little rusty ... Drip feeding a regular savings account at £250 per month for 12 months (total £3000) with an interest rate of 5%... Surely is the same as holding 'half the amount' £1500 in the account at 5%

Or put another way...holding the full £3000 for 12 months at half the interest rate ...2.5%. Or so I thought ...?

I get that to a total of £75

I need to play with an excel spreadsheet just to see if I have this wrong.

YorkshireBoy

KGriff wrote: »

I need to play with an excel spreadsheet just to see if I have this wrong.

No need for a spreadsheet. The cash spends more time in the regular saver than it does in the feeder account, as per the 6.5 & 5.5 multipliers I've already explained above.

Because it doesn't spend EXACTLY the same time in each account over the year, you can't simply 'divide by 2'.

KGriff

In fact I was wrong and stand corrected ...it is £81.25 according to my spreadsheet.

My maths is rusty after all.

Here's the amount of gross interest each £250 deposit makes over the 12 month period (just for info) Annual interest rate is 5%:

12 Months - £12.50
11 Months - £11.46
10 Months - £10.42
9 Months - £9.38
8 Months - £8.33
7 Months - £7.29
6 Months - £6.25
5 Months - £5.21
4 Months - £4.17
3 Months - £3.13
2 Months - £2.08
1 Months - £1.04
TOTAL £81.25

Note **things will vary slightly in these monthly totals due to the number of days in each month, but the annual total is correct

freezspirit

Thanks Guys.

I currently don't have a drip feeding account. I know from my FD monthly saver I will get £117 (£300 pm @6%). I have 2 TSB current accounts (5%) 1 that for most of the year will have £1000 and the other varies between £1400-£2000 depending on credit card bills. My Halifax account giving me £60 a year.

I just didn't realise how much interest I will be getting over a year being around £340. Might not sound a lot to others but is a lot to me.