Failing to understand appeal of regular savers

Ballard

LXdaddy wrote: »

Thanks Ballard - makes sense so "my" formula should be changed to

sum of (the day's closing balance * annual interest rate / days in year)

And obviously the bank would want to accrue (ie keep track of) how much interest has been earned but not yet paid as their liability (to their customer) has increased. (we are talking current/saving accounts here)

I can't remember whether the formula changes to 366 in a leap year but my gut feeling is that it sticks with 365. Almost every other currency calculates on a 360 day year, incidentally.

You're right that this accounting system allows the bank to give an accurate figure for their balance sheet (on both asset & liability side). It also means that they can book their profit/loss in the period in which it was earned. I should point out that I'm not an accountant so don't profess to be an expert.

shortcrust

At the risk of stating the obvious, different products appeal to different types of saver. I've filled all my high paying current accounts so regular savers are the only place for me to get a decent rate on new savings.

jimjames

shortcrust wrote: »

At the risk of stating the obvious, different products appeal to different types of saver. I've filled all my high paying current accounts so regular savers are the only place for me to get a decent rate on new savings.

Is there a reason you need so much cash or are you saving to buy a house? If all current accounts are filled then it might be worth looking at options other than cash such as S&S ISAs but that obviously depends when you need the money.

colsten

jimjames wrote: »

Is there a reason you need so much cash or are you saving to buy a house? If all current accounts are filled then it might be worth looking at options other than cash such as S&S ISAs but that obviously depends when you need the money.

There comes a point in probably everyone's life where you lose interest in new investments, unless you are investing for your heirs, because you can't reasonably expect to live for much longer than the next 10 years.

spenderdave

And with current interest rates lose the will to search for better places for ones money. Even 3% is hardly worth the effort. The banks are really just a safe version of 'under the bed'. But yes, I have an HSBC regular saver at the Advance rate as one of my options even though with it limited to £3000/year it seems not to achieve much.

mgdavid

Kumquats wrote: »

Usually the most efficient way to learn is to talk to a human.

Yes as long as you listen to and believe what you are being told....

No_6

@ spenderdave
So under the bed is better than 3% on £20k or 3% on £3k
or 5% on £2k, you must spend loads .

Robbieh

I find having my bulk money in 3% accounts is very handy to dripfeed into my 5% reg. savers thus making it more than worthwhile to me!

billywoods

Kumquats wrote: »

I'm genuinely really surprised that no one finds this interesting.

I can't work out why everyone else is being so hostile when you're obviously (mathematically) right...

I can only assume different banks do it differently, but I have evidence to support your calculation. I have one of those accounts where you get x% interest on up to £n (though I don't feel like disclosing which one), and have had way over £n in there for several months, which made doing the calculations on it easy. The amount of interest I got in each month seemed to be £n*(1+x)^(number of days in month / number of days in year). That is, using this formula (with the exponent equal to 30/365 in November, 31/365 in December, 31/366 in January) gives the right answer (up to a rounding(?) error of +/- 1p).

This might well be irrelevant to the thread, but I don't think that's any excuse to be sloppy. Money saving is surely all about doing your sums right. On which note, I don't think anyone has answered the OP's question:

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

Presuming you pay in the same amount each month: about half what is quoted (before tax). That is, if you're allowed to save £n per month, and you get 4% AER, then you should expect to be able to put away £12n, and receive about 2% of that

billywoods

Kumquats wrote: »

I'm genuinely really surprised that no one finds this interesting.

I can't work out why everyone else is being so hostile when you're obviously (mathematically) right...

I can only assume different banks do it differently, but I have evidence to support your calculation. I have one of those accounts where you get x% interest on up to £n (though I don't feel like disclosing which one), and have had way over £n in there for several months, which made doing the calculations on it easy. The amount of interest I got in each month seemed to be £[n*(1+x)^(number of days in month / number of days in year) - n]. That is, using this formula (with the exponent equal to 30/365 in November, 31/365 in December, 31/366 in January) gives the right answer (up to a rounding(?) error of +/- 1p).

This might well be irrelevant to the thread, and some people may accuse it of being boring pedantry, but I don't think that's any excuse to be sloppy. Money saving is surely all about doing your sums right.

After all, half-arsing your sums is exactly why people tend to think regular savers underpay them - because they don't do the actual interest calculation. On which note, forgive me if I'm wrong, but I don't think anyone has explicitly and clearly answered the OP's question:

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

Presuming you pay in the same amount each month: about half what is quoted (before tax). That is, if you're allowed to save £250 per month, and you get 4% AER, then you should expect to be able to put away up to £3000, and receive about 2% of that amount again (that's £60) in interest. (This will vary a tiny bit according to how the sums are done at this bank, when you pay money in, etc. but not very much.)

That is assuming that the money is just sitting around somewhere outside of your bank account till you pay it in (e.g. in your employer's bank account, or in your house in cash). If it's just sitting in your current account accruing interest there, and you pay it in regularly to your savings account from your current account, don't forget to take into account the interest from there. For example, if your current account pays you 2% and your regular saver pays you 4%, expect about 3% interest (the average of 2% and 4%) on that sum in total. If your bank account pays 3%, expect 3.5% interest in total.

Of course, if the money is being paid to you monthly, say into a current account that gives you 2% interest, the same calculations apply as for the regular saver: you should expect to get at most half, i.e. 1% interest, on the full total (and less if you're using some of it each month).

That's why people use regular savers: for minimal effort, it will boost your interest rates.