Regular Saver Interest

carrotmuseum

MSE often promotes regular savers account with a headline interest rate e.g. 4%

Has anyone worked out what the true annual interest is if you were to save the max of say £250 p month?

i.e. At the end of the year what is the total interest after 12 months x £250.

It's not 4% is it?

Lokolo

The displayed rate is the true interest rate.

However, there is a calculator on the MSE Regular Saver page, the answer is usually 55% of the advertised rate (i.e. 55% of 4% which is 2.2% of the end balance)

http://www.moneysavingexpert.com/savings/best-regular-savings-accounts#calculator

eskbanker

Of course it's not 4% of the closing balance, because the headline interest rate is an annual one and only a tiny fraction of the money in a regular saver is in there for the full year.

The usual rule of thumb is closing balance x rate x 6.5/12, so for a 4% account with £250/month limit then the interest will be circa 3000 x 4% x 6.5/12 = £65.

Edit: of course the calculation can be expressed more simply as monthly contribution x rate x 6.5 to give the same answer!

classy69

Yes you are quite right. A way of roughly working it out is dividing the interest rate by 2, and applying that to the total balance that the regular saver will hold.


So in your case, £250 x 12 = £3000 @ 2% = approx. £60 in interest for the regular saver at 4%.

bigadaj

classy69 wrote: »

Yes you are quite right. A way of roughly working it out is dividing the interest rate by 2, and applying that to the total balance that the regular saver will hold.


So in your case, £250 x 12 = £3000 @ 2% = approx. £60 in interest for the regular saver at 4%.

Though if someone has a lump sum in another account then the interest earned in that whilst being drip feed needs to be added as well.

So if the feeder account had a rate of 1% say then the real total return would equate to a little over 2.5% for example.

mollycat

carrotmuseum wrote: »

MSE often promotes regular savers account with a headline interest rate e.g. 4%

Has anyone worked out what the true annual interest is if you were to save the max of say £250 p month?

i.e. At the end of the year what is the total interest after 12 months x £250.

It's not 4% is it?

This has been done to death.

Annual interest is 4%.

badger09

mollycat wrote: »

This has been done to death.

Annual interest is 4%.

Indeed. But apparently some people still expect banks to pay them interest on money they haven't yet deposited:cool:

pafpcg

carrotmuseum wrote: »

It's not 4% is it?

Wearing my 'creative accountancy' hat, I think my immediate reply would be:

"What do you want it to be?"

At the end of the year what is the total interest after 12 months x £250?

If you are referring to the highly-topical but now withdrawn 4% regular saver account from Ford Money, then look no further than their Summary document for the account which gives the projected amount of interest on maturity for twelve monthly payments of £250 each with no withdrawals as £65.26.

eskbanker

pafpcg wrote: »

If you are referring to the highly-topical but now withdrawn 4% regular saver account from Ford Money, then look no further than their Summary document for the account which gives the projected amount of interest on maturity for twelve monthly payments of £250 each with no withdrawals as £65.26.

Yes, always useful when institutions provide such projections (are they now obliged to perhaps?), but still worth bearing in mind that they're only estimates, as the actual return will vary according to exactly which day(s) in the month the deposits are made - some take such figures very literally and get upset when they're "only" paid, say, £65.14....

teddysmum

badger09 wrote: »

Indeed. But apparently some people still expect banks to pay them interest on money they haven't yet deposited:cool:

Quite a few it would appear.


I notice that MSE has put an explanation in the latest news letter.

phillw

mollycat wrote: »

This has been done to death.

Annual interest is 4%.

It has been done to death, by people arguing about two different things. So there will never be consensus. People want to know what value they'll get back if they save a certain total amount of money spread over 12 payments, knowing the aer doesn't help them.

The answer is slightly more than half of the interest rate, but if you have the money sitting elsewhere then it can be earning interest elsewhere too.

teddysmum wrote: »

Quite a few it would appear.

It's not that they expect to get interest on money they haven't deposited, they just want to know how much money they'll get back if they deposit the money. Repeating that it's 4% doesn't help them. They may not have asked the exactly correct question, but being pedantic isn't very nice.