Earned Interest- Do What With It?

Drucifer

Hello,

I'm in the process of opening the Nationwide FlexDirect account, once opened I'll be transferring in the full £2500 and I've another £1000 ready to cycle in/out each month.

From my understanding it's quite common that people to do this, move money between many accounts to achieve the highest interest possible, but my question is what do you ultimately do with the earned interest?

Do you just let the interest build up in the account?
Move the interest to another account?
Spend it?
Invest it?

I'm genuinely interested to hear some strategies from people that do this often, this'll be the first time I've bothered to chase the best interest rates and I'd like some ideas on the best way to use the interest.

Thanks.

RG2015

It will be about £10 per month which adds up to £122 for the year after which the rate will drop to 1%. I am afraid that this sort of amount is not going to go far whatever you do with it.

However, you will qualify for their regular saver also at 5% pa and with a maximum of £250 per month you will have up to £3,342 after 13 months. This sum is worthy of some consideration.

ValiantSon

The interest I earn in current accounts (I have several interest paying accounts) is transferred each month into an easy access savings account. I fund regular savers as well, so some of it ends up in those. Investments in my S&S ISA are bought out of monthly income, so the interest earned on current accounts doesn't go there.

Once you have several accounts up and running it becomes harder to pinpoint exactly where each specific bit of interest goes, as there are several accounts with money moving around, but the key point is that I don't leave interest sitting in a current account earning nothing. The interest is moved out each month after it is paid and put into another account where it will earn interest itself.

I only have one account where there is money not earning interest and that is my "main current account", which does pay interest, but as I use it for nearly all of my bills I keep more in it than the maximum that can earn interest, so I earn the full interest possible and then have money in it to meet all the bills, plus a little bit more.

Sea_Shell

We transfer the interest out each month to other interest paying accounts, which in turn feed regular savers.

We are gradually moving into drawdown territory with our savings...so it does, in effect, get spent.

Every little helps!

aj23_2

Drucifer wrote: »

Hello,

I'm in the process of opening the Nationwide FlexDirect account, once opened I'll be transferring in the full £2500 and I've another £1000 ready to cycle in/out each month.

From my understanding it's quite common that people to do this, move money between many accounts to achieve the highest interest possible, but my question is what do you ultimately do with the earned interest?

Do you just let the interest build up in the account?
Move the interest to another account?
Spend it?
Invest it?

I'm genuinely interested to hear some strategies from people that do this often, this'll be the first time I've bothered to chase the best interest rates and I'd like some ideas on the best way to use the interest.

Thanks.

I just used to leave it with my FlexDirect. I didn't change spending habits or do things differently. When I switched to Halifax Reward after 12 months (FlexDirect dropped to 1% from 5% and Halifax was offering £125 to switch plus £3 a month), I just viewed it as being £120 or so better off than I was 12 month previous. I had Santander 123 before they cut the rate, and I did the same; I just let the interest be added and didn't do anything differently. Didn't 'spend it,' withdraw it etc.

My phone bill was £11 for some of the time I had the FlexDirect, later £6. So I saw it as Nationwide basically paying my phone bill.

Same with my Tesco CA. I don't use it, I just leave the max in it and use it as a savings account, and get £7.50 a month. I don't spend it, I just let it accumulate. Same with my regular savers and HTB ISA, I don't withdraw from any of them (have some restrictions), I just let the interest accrue on my max. deposits, so you end up getting interest on the interest.

After 12 months of you having FlexDirect, I'd switch to someone else, as you can get more elsewhere, usually a payment for switching is better than switching for interest as it's money up front which is usually more than the interest now.

Unless you have many accounts whereby once you've hit the limit of interest payable, and don't get anything above, I wouldn't bother moving any interest to an account where you keep your interest. For example, my two regular savers and HTB ISA generate interest on the balance regardless of what it is as there's no limit, so it's not worth moving the interest to an easy access account which pays 0.5% when I'm getting between 2%-4% from multiple accounts on a combined five digit balance.

ValiantSon

If you leave the interest in the account then you are missing out on interest on that interest. As you said that you will have the maximum interest earning balance in the account then this would be foolish when you can earn at least 1.35% on it in an easy access savings account and more in a regular saver.

Audaxer

ValiantSon wrote: »

If you leave the interest in the account then you are missing out on interest on that interest. As you said that you will have the maximum interest earning balance in the account then this would be foolish when you can earn at least 1.35% on it in an easy access savings account and more in a regular saver.

That's true, but the maximum interest you get on a NW FlexDirect account with a balance of £2,500 is £125 over the year. If you reinvest the £10 or so interest you get monthly in a regular saver paying 1.35% or a bit more, it is likely to be less than £1 extra you earn from the interest over the year, so not really worth it in my opinion.

ValiantSon

Audaxer wrote: »

That's true, but the maximum interest you get on a NW FlexDirect account with a balance of £2,500 is £125 over the year. If you reinvest the £10 or so interest you get monthly in a regular saver paying 1.35% or a bit more, it is likely to be less than £1 extra you earn from the interest over the year, so not really worth it in my opinion.

Fair enough, but it takes little effort to move it, so why not do so?

And a regular saver at 5% has an effective interest rate of 2.69%.

Audaxer

ValiantSon wrote: »

Fair enough, but it takes little effort to move it, so why not do so?

That's fair enough if you think it's worth the effort. I personally just prefer to see the interest build up in the account, or 3 accounts in our case as my wife has an account and we also have a joint account. If it was more significant amounts of interest, I agree it would make sense for me to transfer the interest elsewhere.

YorkshireBoy

Audaxer wrote: »

That's fair enough if you think it's worth the effort. I personally just prefer to see the interest build up in the account, or 3 accounts in our case as my wife has an account and we also have a joint account. If it was more significant amounts of interest, I agree it would make sense for me to transfer the interest elsewhere.

But it's no more effort is it? In this case you'd simply transfer out £10 more than you transferred in, by whatever funding mechanism you were using.

rangers_fc

Bank accounts are play things, its about generating interest & diverting interest to gain more interest, if you are utilising current accounts at maximum balance. Amalgimating current accounts with regular saver accounts works if you are prepared to utilise free time in the process. Switching accounts works in the current low interest environment but again it helps if you are on top of youre finances.
In the end its about how much time you are prepared to use to obtain the most gain