Santander ESaver interest calculations wrong?

shennan

I see...

MSE Forum - 1
Shennan - 0

eskbanker

shennan wrote: »

I see...

MSE Forum - 1
Shennan - 0

More like:

Shennan - 123
MSE Forum (and Martin and more importantly Santander) - any!

polymaff

Terry98 wrote: »

Yes. How is it that Santander say "Based on a regular payment of £200 per month for 12 months at 5.00% gross (variable), you could earn up to £64.33 in interest."

Several factors.

One is that non-banking days - and the fact that neither 365 nor 366 are divisible by 12 - make being a truly regular saver impossible.

Another is the first funding date. Some organisations insist that the account be funded immediately on opening, others just within x days of opening.

EDIT: As for Shennan's over-optimistic forecast - he/she appears to have used 12 by 30 days then a 13th five-day month - including a 13th deposit - as his/her model of a year.

FOREVER21

My rule of thumb for any regular saver is total amount saved x half of the AER advertised will give an approx amount.

In this case £2400 saved x 2.5% = £60, not that far from the actual £64. Now I know that this will never satisfy the purists ,but does for me.

PeacefulWaters

FOREVER21 wrote: »

My rule of thumb for any regular saver is total amount saved x half of the AER advertised will give an approx amount.

In this case £2400 saved x 2.5% = £60, not that far from the actual £64. Now I know that this will never satisfy the purists ,but does for me.

I prefer total saved X rate X 6.5 / 12.

adindas

PeacefulWaters wrote: »

I prefer total saved X rate X 6.5 / 12.

I remember I read some where about where the figure 6.5 is coming from.

Does anyone could explain this again or provide link to the previous post ??

Thannks.

PeacefulWaters

adindas wrote: »

I remember I read some where about where the figure 6.5 is coming from.

Does anyone could explain this again or provide link to the previous post ??

Thannks.

The money is in for either 12,11,10,9,8,7,6,5,4,3, or 1 months.

Added together this is 78 months averaged by 12 contributions.

78/12=6.5.

adindas

PeacefulWaters wrote: »

The money is in for either 12,11,10,9,8,7,6,5,4,3, or 1 months.

Added together this is 78 months averaged by 12 contributions.

78/12=6.5.

Thanks. I could now see now
It seems it ignores the daily compounding. But i am aware this is s rough calculation.

How accurate is this one to be compared with including daily compounding ?? Say for £200 monthly payment Is it less than £1 difference ?

I could compare this myself using spreadsheet or online calculator. But just wonder whether other people have done this comparison before ??

Thanks again..

bowlhead99

Your interest doesn't compound daily. Because interest is not paid daily and is only received once a month at the end of the month (assuming a monthly paying account*) So it can only compound monthly.

For example, you deposit £100 on Monday. On Tuesday, you still only have Monday's money. On Wednesday you still only have Monday's money. And so on until you get to the end of the month. Only then, after you've had an interest payment, does the account containn both the £100 *and* some interest on the £100.

For another month, again the balance doesn't move. Then, you get paid another month's interest, which this time is paid on the £100 and on the interest that was already received on the £100 so far, if you didn't withdraw and spend it.

So, ignoring new deposits, you are not earning and *receiving* new interest every single day, so the balance on which the interest is being calculated isn't going up every day. It only goes up once a month.

So, you still earn money on what is in the account every single day, but what is in the account isn't changing every day. So the effect you get is not a daily compound on 365 interest payments, but a monthly compound on 12 interest payments.

The rate paid on those 12 monthly payments is paid at a little bit less than 3% a year, so that assuming the total balance doesn't go over the maximum amount they pay interest on (£20k at Santander on a123 account) it compounds up to the 3% "Annual Equivalent Rate" which they published.

If you were to do the maths, for a fixed annual equivalent rate (e.g. 3% AER) there is not very much practical difference between a daily interest rate paid daily and compounded daily, and a monthly rate paid on the daily balance and compounded monthly. The Annual Equivalent Rate is the way to compare between different rival accounts that pay and compound at different times.

* to avoid any confusion - as LXdaddy pointed out, Regular Saver accounts (unlike some savings accounts and most current accounts like Santander's) don't generally pay interest monthly at all, but simply once at at the end of the year giving zero compounding. The comments above were really just to cover off the point that daily compounding is irrelevant because accounts don't every pay interest in daily so there is nothing new to compound on a daily basis, only at the end of the month or whenever interest is actually credited.

adindas

Ok Thanks.
Since it is a monthly compounding, It looks to me that the difference with rough calculation using factor of 6.5 will be tiny.

bowlhead99 wrote: »

Your interest doesn't compound daily. Because interest is only received once a month at the end of the month. So it compounds monthly.

For example, you deposit £100 on Monday. On Tuesday, you still only have Monday's money. On Wednesday you still only have Monday's money. And so on until you get to the end of the month. Only then, do you have the £100 *and* some interest on the £100.

For another month the balance doesn't move. Then, you get paid another month's interest, which this time is paid on the £100 and on the interest that was received on the £100 so far.

So, ignoring new deposits, you are not earning and *receiving* new interest every single day, so the balance on which the interest is being calculated isn't going up every day. It only goes up once a month.

So, you still earn money on what is in the account every single day, but what is in the account isn't changing every day. So the effect you get is not a daily compound on 365 interest payments, but a monthly compound on 12 interest payments.

The rate paid on those 12 monthly payments is paid at a little bit less than 3% a year, so that assuming the total balance doesn't go over the maximum amount they pay interest on (£20k at Santander) it compounds up to the 3% "Annual Equivalent Rate" which they published.

If you were to do the maths, for a fixed annual equivalent rate (e.g. 3% AER) here is not very much practical difference between a daily interest rate paid daily and compounded daily, and a monthly rate paid on the daily balance and compounded monthly. The Annual Equivalent Rate is the way to compare between different rival accounts that pay and compound at different times.