Maxing Santander 123 interest

D.C_2

Quoting from the Key Questions section of moneysavingexpert.com/banking/compare-best-bank-accounts re Santander 123

<quote> if you just left £20,000 in the account the whole time, you'd actually get the gross rate of 2.96% – as the monthly interest earned would take you over the £20,000 limit (and therefore wouldn't be able to earn interest itself). This would mean that instead of getting £600 interest in a year that you'd get if the interest could compound, you'd only get £592. </quote>

So my question: is it possible to obtain the maximum interest of £600 at 3%?
As interest is applied per month I assume it's 3/12 = 0.25?
0.25% of 20,000 = 50
20,000 - 50 = 19,950
So if you leave £19,950 in the account per month (by studiously removing the monthly interest) monthly interest would be £49.875.

The annual interest would therefore be £49.875 * 12 = £598.50 i.e. £1.50 short of the £600 but better than the quoted £592.

Can someone with better maths than me find the missing 1.50? :-)

More seriously, is maintaining a monthly maximum threshold a valid strategy in reality?

LXdaddy

The interest rate on the 123 account (with balances of at least £3000) is 2.96% gross.


Interest is credited each month. If the credited interest also earns interest then it compounds and you will achieve a total which would be the same as 3% interest paid once per year. That's fundamentally what the AER figure represents.


If every month was the same length then on £19,500 held throughout the month you would earn £19,500*2.96%/12 = £48.10 (gross) if you immediately take that out of the account then at the end of the next month you would get another £48.10 interest. If you did the same every month then you would get a total of £577.20


To get the maximum you should keep (at least) £20,000 in the account and get £49.33 each month for a total of £591.96


But also bear in mind that each month is not exactly the same so there will be some small variation and the rounding will be slightly different.


Basically £592 is the maximum gross interest on a 123 account.

jimjames

D.C wrote: »

So my question: is it possible to obtain the maximum interest of £600 at 3%?

It is if you move the interest into another account paying 3% every month. But you can do even better than that and move it into an account paying 5% instead. Or even move more of your £20k into accounts paying 5% if you want the best return.

grumbler

A 6% regular saver is the best for sweeping the interest to (together with a part of s123 balance if there is no extra money to use the full monthly allowance(s)).

No_6

Just move anything over £20K into another high interest account, each month.
and do not forget about the 2 DD's that will come out some time !
ie top it back up when they apply.