Failing to understand appeal of regular savers

Bumpkin_Billionaire

I'm probably misunderstanding something vital here so please put me right if I am. Looking at TSB's Monthly Saver I see a headline rate of 4% Net AER (which I understand to mean Annual Equivalent Rate). Sounds good, except that it seems to me that you only get the 4% on your first payment since that's the only amount that will be in the account for a year. On the second payment you get 4% x 11 12ths, then the next gets 4% x 10/12 and so on, dwindling away each month. So on your deposit in the final month you hardly get anything in terms of interest.

Overall, what percentage interest on the total sum paid in are you actually getting?

Presumably there's a point beyond which it's not worth paying any more in - but I assume if one stops one's payments that would invalidate the account.

Or have I misunderstood the way it works?

EssexExile

I'm sure they all vary, with a Nationwide one the rate you get depends on how much you put in each month. Put in less one month, get a lower rate. Personally I can't be bothered with most as the amount you can put in is quite small &, as you say, you don't get a full year's interest on all of it.
Others will no doubt disagree.

metrobus

Your 11th month payment is earning interest elsewhere for the 1st ten months.
You get 4% for the money that you deposit for the times that it's in the account.

YorkshireBoy

You've misunderstood, yes.

Let's assume you have some income spare each month, say £300. Your choices are either to save this in a Santander 123 account paying 3% AER or in a First Direct account paying 6% AER.

Now, subject to you already having >£3K in Santander, your interest earned will be as follows:

Santander:

(12 x £300) x 3% / 12 x 6.5 = £58.50

First Direct:

(12 x £300) x 6 % / 12 x 6.5 = £117 (so no surprises there!)

Now which is the best account to save the £300 a month in?

YorkshireBoy

metrobus wrote: »

Your 11th month payment is earning interest elsewhere for the 1st ten months.

Not if you haven't earned it yet! Not everyone opening regular savers funds via drip-feeding.

Dan83

YorkshireBoy wrote: »

You've misunderstood, yes.

Let's assume you have some income spare each month, say £300. Your choices are either to save this in a Santander 123 account paying 3% AER or in a First Direct account paying 6% AER.

Now, subject to you already having >£3K in Santander, your interest earned will be as follows:

Santander:

(12 x £300) x 3% / 12 x 6.5 = £58.50

First Direct:

(12 x £300) x 6 % / 12 x 6.5 = £117 (so no surprises there!)

Now which is the best account to save the £300 a month in?

Where does the 6.5 come from?

YorkshireBoy

Dan83 wrote: »

Where does the 6.5 come from?

1st payment 12/12ths of a year, second 11/12ths, and so on down to last payment 1/12th of a year.

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

If you're drip-feeding (ie from existing savings rather than from income) then your cash spends the other 5.5 months of the year in the other account.

So drip-feeding FD from Santander 123 would return:

(£3,600 x 6% / 12 x 6.5) + (£3,600 x 3% / 12 x 5.5)

Ballard

Regular savers aren't the answer to everyone's prayers but they aren't a bad product either. If you have funds to save every month and you want to keep it as cash then they're about as good as you're likely to get without taking any risks.

You are getting the same interest rate throughout the year; it's the principal that is variable.

Dan83

YorkshireBoy wrote: »

1st payment 12/12ths of a year, second 11/12ths, and so on down to last payment 1/12th of a year.

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

If you're drip-feeding (ie from existing savings rather than from income) then your cash spends the other 5.5 months of the year in the other account.

So drip-feeding FD from Santander 123 would return:

(£3,600 x 6% / 12 x 6.5) + (£3,600 x 3% / 12 x 5.5)

Oh right, now it make sense.

I've seen the calculation on here a few times, but never understood the 6.5 👍🏼

danlightbulb

Regular savers, and high interest current accounts for that matter, are annoying to me. I just want to put my money in a savings account, as one block. I don't want to keep it in my current account mixed up with my monthly ins and outs, and I don't want to drip feed a regular saver.

Why can't they just give me a linked savings account that I can put my block of money in at 5%.

Annoying.

ceredigion

danlightbulb wrote: »

Regular savers, and high interest current accounts for that matter, are annoying to me. I just want to put my money in a savings account, as one block. I don't want to keep it in my current account mixed up with my monthly ins and outs, and I don't want to drip feed a regular saver.

Why can't they just give me a linked savings account that I can put my block of money in at 5%.

Annoying.

Because they don't won't your money