Why B&B and ICICI savings account aren't as good as they seem

meinnit

Interesting article on savings account that require direct debit deposits.

Both the Bradford & Bingley Internet Saver’s and ICICI Hisave accounts have a 6.4% APR, but once you factor in the lost interest you’re only earning at 5.52%. The Scarborough Direct Exclusive Saver’s 6.3% rate falls similarly to 5.44%.

http://www.everyinvestor.co.uk/personal-finance/savings/why-direct-debit-can-be-a-saver%E2%80%99s-nightmare/e/150-1255

clearform

surely this is going to be the same for ALL internet savings accounts so why single out just B&B and ICICI?

obsessed_saver

Damian Clarkson (the writer of the article) doesn't know how to count his toes. Assuming you put in £500 every month, and it takes 5 days to make it into ICICI, you'll be earning 6.4% for the rest of the 360 days in a year (or 6.312328767% more or less).

The next month's £500 will also lose only 5 days interest, but not the first month's £500 because it's already in the account!

I have no idea how he dreamed up the "£165" of lost interest.

Probably doesn't understand "regular saving" compared to depositing one lump sum.

If you have £6000 straight off (£500 x 12) to put in right at the beginning of "a year", then you'll earn 6.312328767% more or less in that one year (minus the 5 days of lost interest).

But, if you don't have £6000 to begin with and can only save £500 every month from your salary, then it's a regular saver and the interest calculation will be different, obviously!

noh

It doesn't take 5 days. With a DD the money reaches the savings account the same day it leaves the bank account. With B+B it starts earning interest the day after so 1 day lost.
Accounts that are funded using BACs may lose 2-5 days interest on the way in. So DD is actually one of the most efficient ways of transferring money to savings accounts.

Nigel

Aegis

You have to be kidding me... Was this actually his calculation:

Factored interest rate = AER x 315/365

??

A quick calculation says that yes, it was. Quite frankly, if his methods of calculating interest are that far off, under no circumstances should he be telling anyone anything about banking or finance products...

meinnit

My initial deposit from my current account to my B&B savings account took a full 7 days to become eligable to earn interest. I was quite put off by this however I have been informed that further deposits should take less time but I have not tried this yet.

Has anyone actually made a deposit after their first initial direct debit deposit? How long did it take?

Aegis

Just out of interest, I did a calculation this morning assuming 5 days loss of interest for each deposit and a gross rate of 6.4% with £500 being saved each month over a 12 month period.

The total amount of lost interest was less than £6.

I've sent this calculation to the contact address for everyinvestor.co.uk stating that I believe their article is using incredibly incorrect figures and should be amended immediately.

noh

meinnit wrote: »

My initial deposit from my current account to my B&B savings account took a full 7 days to become eligable to earn interest. I was quite put off by this however I have been informed that further deposits should take less time but I have not tried this yet.

Has anyone actually made a deposit after their first initial direct debit deposit? How long did it take?

Thats not the case. It was seven days until it was available for withdrawal. It started earning interest the day after it arrived. See section 5.3 of the T+Cs
http://www.bradford-bingley.co.uk/_img/savings/Cropped_Internet_Saver_-_12th_Sept_2007.pdf

Nigel

meinnit

noh wrote: »

Thats not the case. It was seven days until it was available for withdrawal. It started earning interest the day after it arrived. See section 5.3 of the T+Cs
http://www.bradford-bingley.co.uk/_img/savings/Cropped_Internet_Saver_-_12th_Sept_2007.pdf

Nigel

Thats interesting! The FAQ states this:

The 'processed' balance is the total balance of the account and includes transactions that may not have been fully cleared. This is the balance upon which interest is earned on the account.

My first transaction was in processing state for a week before it became processed so I assumed that I wasn't earning interest on this. Still very confused!

Mr._Nice

Not to mention that with First Direct and HSBC at least (and hopefully other decent current accounts), money payed out by BACS continues to accrue interest for the two working days of the BACS cycle where the money is "between" accounts. This is the way it should be, since the bank the money is being transferred from by BACS doesn't give the money to the other bank until the end of the cycle.
BACS cycle:
Day 1: Sending bank sends details of the payee account.
Day 2: Receiving bank confirms validity of account details.
Day 3: Money transferred, and should appear in receiving account.

Relevent parts of First Direct's t&cs:

4.7.2
These payments will be deducted from your account immediately but you will normally have to wait two business weekdays before the payment reaches the beneficiary. For example, a payment which debits your account on Monday will usually reach the beneficiary on Wednesday.

4.7.3

Subject to Clause 4.7.4 below, for interest calculation purposes (if applicable), most automated payments are treated as debiting your account two business weekdays after the funds are deducted from your account, Wednesday using the above example. This is so that you benefit from the value of the payment whilst it is being processed (if applicable, you will earn interest on it if your account is in credit or pay less overdraft interest if your account is in debit). However, this does not mean that the value of the payment will be available to you, it will be debited from your account when we receive your instruction and that instruction cannot be reversed.

Emphesis mine.
Clause 4.74 btw merely mentions that transfers to other First Direct or HSBC accounts is immediate.

Back when I used HSBC a popup informed you of this useful fact everytime you made an online BACS transfer.

aspiration_2

Very thought provoking.

However some building societies allow you to save for more than a year (unlike others/banks that limit you to 1 year)

Am I correct in assuming that the first years savings will at least earn the maximum interest during the second year?