Current act with better interest than savings act

tombon92

Hello,

I have just got round to cashing in bonds made when I was born and so have had a lot more money in which to save. I met with my bank yesterday and created a new savings account with 1% interest (due to a loyalty scheme) and a current account with 5% interest for the first year and then 1% thereafter (requires income to be at least 1,000 a month to enter account).

I'm very new to this sort of thing having never had much money. But would I be right here in putting the lump sum of money (40k) into my current account for the first year to take advantage of the 5%? Or even to gradually put more and more money in it as the 12 months goes on? As I said, I'm not sure if it's that simple and I've never been taught good savings strategy.

Any help would be greatly appreciated.

MallyGirl

I think you need to look at the terms a bit more closely. If this is Nationwide it would give 5% on balances up to £2500 for 1st year - not on full £40k

sjp999

Sounds like the Nationwide, if it is then it's a max deposit of 2,500 for the 5%.

tombon92

Thanks both. Yes, it's Nationwide.

So could I deposit 2,500 per month into my current account and benefit from that, or would it not be worth it?

Zanderman

tombon92 wrote: »

Thanks both. Yes, it's Nationwide.

So could I deposit 2,500 per month into my current account and benefit from that, or would it not be worth it?

No. You keep at least £2500 in the current account. Always.

You pay in at least £1000 each month - which triggers the 5% interest on the 2500 (for the first 12 months).

You can take out/spend the £1000 again during the month. But keep at least 2500 in there for the max interest.

Nothing to gain by adding more than £1000 per month.

The interest (5% pa on 2500) will be about £10 per month. Up to you to decide whether it's worth it. Most people think it is.

tombon92

Thank you! Really appreciate it. I'll do that. The 120 total roughly along with the 400 from the 1% on the 40k would I think make it worth it

bowlhead99

You will get paid 5% interest on the first £2500 of balance that is sitting there at a point in time, but you won't get paid any interest on amounts exceeding £2500.

You can put £1000 or more into it each month to meet the terms and conditions of the account, but it wouldn't be very efficient to keep those extra amounts in there. As if the balance averaged £5,000 or £10,0000 or £50,000 over the course of the year you still wouldn't get more interest than if there was £2501 in it. 5% on £2500 is about £125 after the year is up.

With the same building society you could open up a 'flexclusive regular saver' account paying 5% a year on up to £250 of new savings per month; so the balance in that account would keep ticking up from £250, £500, £750, £1000 and so on and you would be earning 5% a year on whatever was in there at a point in time.

But this 2500 in one account and another account going up from £0 to £3000 over the course of the year, will not use up a great deal of your money. You would need to find another home for the rest of it. Like that 1% account you have, or other accounts at other banks which pay higher rates but only on relatively small amounts of money

tombon92

bowlhead99 wrote: »

You will get paid 5% interest on the first £2500 of balance that is sitting there at a point in time, but you won't get paid any interest on amounts exceeding £2500.

You can put £1000 or more into it each month to meet the terms and conditions of the account, but it wouldn't be very efficient to keep those extra amounts in there. As if the balance averaged £5,000 or £10,0000 or £50,000 over the course of the year you still wouldn't get more interest than if there was £2501 in it. 5% on £2500 is about £125 after the year is up.

With the same building society you could open up a 'flexclusive regular saver' account paying 5% a year on up to £250 of new savings per month; so the balance in that account would keep ticking up from £250, £500, £750, £1000 and so on and you would be earning 5% a year on whatever was in there at a point in time.

But this 2500 in one account and another account going up from £0 to £3000 over the course of the year, will not use up a great deal of your money. You would need to find another home for the rest of it. Like that 1% account you have, or other accounts at other banks which pay higher rates but only on relatively small amounts of money

Yes I was told about theflexclusive regular saver but I thought that with the lump sum I have on the 1% it would be the better option. I could be wrong though about that.

MallyGirl

5% on £250 pcm is better than leaving that same £250 earning 1%. You should still look around for something better than 1% on the bulk

xylophone

Other savings accounts here.

http://www.thisismoney.co.uk/money/article-1583859/Best-savings-rates-General-savings-Internet-branch.html

You can do better than 1%.

https://www.moneysavingexpert.com/banking/compare-best-bank-accounts

Do you have any Direct Debits?

Even if not you might look at opening a TSB Plus current account.

£1500 as an immediate deposit, cycle in/out £500 a month and opt for paperless.

You might look at regular savers.

https://www.moneysavingexpert.com/savings/best-regular-savings-accounts

You will be a first time house buyer?

You might consider a LISA.

https://www.moneysavingexpert.com/savings/lifetime-ISAs

tombon92

MallyGirl wrote: »

5% on £250 pcm is better than leaving that same £250 earning 1%. You should still look around for something better than 1% on the bulk

So you'd suggest having two savings accounts with the one bank?

My main aim is to afford a first deposit on a house within three years. As I live in an area with extortionate house prices, the 40k would barely be enough for a 1 bed and I couldn't afford subsequent mortgage payments anyway. Normally I would have just put the money into another long term bond but the money I'm paying on rent at the moment means investing in a house would be a better way of using it.