Santander 123 Interest

ValiantSon

mark9660 wrote: »

Thanks. Very helpful. But how are they allowed to advertise 1.5% when it's not really? Very confusing for most I would have thought.

Because it does pay 1.5% AER (and that is the mandated figure that banks must show). I suggest that you look at the difference between AER and gross interest.

SnowTiger

Chappers27 wrote: »

I recently applied for a Santander 123 account. Sounds great, but I asked the customer service guy to calculate what interest I'd get and what discounts I might get on my utilities - and to compare this against the account fee. Turns out I'd be paying them to have my account. So I didnt do it. Bit of a con to be honest.

123 Lite may be a better option.

And don't forget that you can usually overpay some of your household bills.

Up your gas/electric DD by, say, £100 a month, then request the overpayment back after a year and you, effectively, earned about 4% interest.

surreysaver

It's 1.5% AER, because it is 1.49% monthly, and if you left the interest in the account to compound the interest (earn interest on the interest), it would be the equivalent of earning 1.5% if the interest was paid annually.

eskbanker

surreysaver wrote: »

It's 1.5% AER, because it is 1.49% monthly, and if you left the interest in the account to compound the interest (earn interest on the interest), it would be the equivalent of earning 1.5% if the interest was paid annually.

Indeed, but there does need to be a caveat added that it isn't possible to earn the 1.5% AER on £20K in a Santander 1-2-3 because compounding doesn't apply when the account is fully funded, as the interest can't earn interest once the cap is reached. The same applies to any other account where interest is only earned on balances up to a specified level....

Dragonfly1

r2015 wrote: »

When you reach my age and are instructed by your wife to make the banking simple and reduce the amount of bank accounts in case anything happens, you don't bother about a £1 or 2 extra a month.

If this money is going to be sitting in Santander for the next couple of years with a high certainty, best go and get some financial advice with your wife about investing it. It'd be irresponsible to name products/stocks here but you can be aiming for at least 5% return annually through investing. There's always going to be some risk though, but it's incredibly small if you seek sound financial advice and willing to keep with the investment for a few years if there's a downturn. Just food for thought as £240/annually is a drop in the ocean for what £17,000 can pay out on a yearly basis.

I've got TSB as at least it's 3% interest but Santander interest is pathetic these days.

It's a shame personally that I missed out on great returns 3 years to 1 year ago as, to be frank, I followed this sub-forum and didn't really ever see ISA Stocks & Shares mentioned as a (better) alternative.

Breadcake

In addition to the points already mentioned, the AER is the advertised rate. This is so the monthly interest account can be compared to an annualised account where if both accounts hold the same amount for one year they both earn the same interest.

Example:
Starting balance of £15000
On an annualised account paying 1.5% interest you can expect £225 added to your account after one year, bringing the balance to £15225.
When interest is paid monthly (at the gross rate of 1.49%) the account balance would look more like this (Not considering days/month):
Month 1 £15018.63
Month 2 £15037.27
Month 3 £15055.94
Month 4 £15074.64
Month 5 £15093.36
Month 6 £15112.10
Month 7 £15130.86
Month 8 £15149.65
Month 9 £15168.46
Month 10 £15187.29
Month 11 £15206.15
Month 12 £15225.03

If the gross rate was 1.5% then after one year you'd have £15226.55 which would be equivalent to an AER of 1.51% (If you came across two accounts where one is monthly gross at 1.5% and the other was annual interest at 1.5% you'd be better off selecting the monthly due to compounding).

As mentioned by eskbanker: Where an account has a limit to the balance that earns interest you won't benefit from compounding. In the Santander 123 accounts case this means you'll only receive £298 of interest as opposed to £300.04 if the roof wasn't capped at £20k

ValiantSon

Dragonfly1 wrote: »

If this money is going to be sitting in Santander for the next couple of years with a high certainty, best go and get some financial advice with your wife about investing it. It'd be irresponsible to name products/stocks here but you can be aiming for at least 5% return annually through investing. There's always going to be some risk though, but it's incredibly small if you seek sound financial advice and willing to keep with the investment for a few years if there's a downturn. Just food for thought as £240/annually is a drop in the ocean for what £17,000 can pay out on a yearly basis.

I've got TSB as at least it's 3% interest but Santander interest is pathetic these days.

It's a shame personally that I missed out on great returns 3 years to 1 year ago as, to be frank, I followed this sub-forum and didn't really ever see ISA Stocks & Shares mentioned as a (better) alternative.

To characterise investing as carrying an, "incredibly small" risk is somewhat disingenuous. The risk very much depends on the mix of the investments and the timescale they will be held over. For someone in their seventies, a high equities mix may well expose them to too much risk, as they don't necessarily have the time to sit out a downturn and recovery. Talking about keeping the investments for, "a few years" is also worrying. Investing for anything much under ten years is pretty high risk.

I am increasingly concerned at the growing number of blase posts appearing that treat investment risk as if it is nothing of note. These posts have rarely considered an individual's circumstances - including whether they would have any other cash savings to draw upon in an emergency, nor their financial objectives, nor their stage of life. I do feel that there is a real issue with a little knowledge being a dangerous thing, bolstered by a large number of inexperienced investors who have only ever benefited from the most recent bull market.

Oh, and good luck with finding an IFA who is all that interested in a client with only £17,000 to invest.

r2015

To characterise investing as carrying an, "incredibly small" risk is somewhat disingenuous. The risk very much depends on the mix of the investments and the timescale they will be held over. For someone in their seventies, a high equities mix may well expose them to too much risk, as they don't necessarily have the time to sit out a downturn and recovery. Talking about keeping the investments for, "a few years" is also worrying. Investing for anything much under ten years is pretty high risk.

I am increasingly concerned at the growing number of blase posts appearing that treat investment risk as if it is nothing of note. These posts have rarely considered an individual's circumstances - including whether they would have any other cash savings to draw upon in an emergency, nor their financial objectives, nor their stage of life. I do feel that there is a real issue with a little knowledge being a dangerous thing, bolstered by a large number of inexperienced investors who have only ever benefited from the most recent bull market.

Oh, and good luck with finding an IFA who is all that interested in a client with only £17,000 to invest.

For someone in their seventies,

Especially when they have medical conditions that reduce their life expectancy significantly.

mark9660

Actually I still think it's misleading. The account pays the interest when your balance is in credit up to £20,000. So assuming I leave the balance at £20,000 every day for a year I can only earn 1.49% on the £20,000 and never reach the AER of 1.5%. If, however, I start with less than £20,000, say £10,000 I earn 1.49% interest each day, including in subsequent months the compounded interest I earned, then I would end up have received an annual 1.5% interest/AER. So I get a reduced level of interest for having a larger account balance. Doesn't seem fair to me.

ValiantSon

mark9660 wrote: »

Actually I still think it's misleading.

Okay, you think that. It isn't misleading, but feel free to think what you want.

mark9660 wrote: »

The account pays the interest when your balance is in credit up to £20,000. So assuming I leave the balance at £20,000 every day for a year I can only earn 1.49% on the £20,000 and never reach the AER of 1.5%. If, however, I start with less than £20,000, say £10,000 I earn 1.49% interest each day, including in subsequent months the compounded interest I earned, then I would end up have received an annual 1.5% interest/AER. So I get a reduced level of interest for having a larger account balance. Doesn't seem fair to me.

It is perfectly fair. The AER is 1.5%, and the gross interest is 1.49%. The maximum on which they will pay interest is £20,000, so if you reach £20,000 then you can't earn interest on the interest.

They are legally required to state what the AER is, as this is meant to allow for comparison with other accounts. They also tell you what the gross interest rate is. There is nothing unfair about this.