How many Regular Savings Accounts do you have?

EachPenny

JohnRo wrote: »

This is getting starnger and stranger, why would you put anything in a 2.5% RS that can otherwise be earning more interest in a regular deposit account, on an annual basis, that offers something close to half the RS headline interest rate on the whole amount for the whole year.

Because every day that £1 is sitting in an account earning 2.5% interest, rather than a standard account paying half that amount, means you earn more interest on that pound overall.

It doesn't matter if it is only there for 28/30/31 days - it will still earn you more interest than if you left it languishing in the standard account.

gingercordial

JohnRo wrote: »

I don't bother with anything 'regular saver' that's less than a 3% headline rate.

But when I've maxed out all of the high-interest current accounts where else should I put my money to do better than that? I want to buy a house in 12-18 months and so can't lock it up long-term or invest in shares. So my 3.36% average on regular savers (broadly speaking a mixture of those paying at 5% and those paying at 2.5%) is the best I can do in my own current circumstances.

If I were to "let go" of all the ones which are at 2.5% and only keep the ones at 5%, OK my weighted average interest rate would go up, but where am I going to put the contributions I'm making to the 2.5% set to make that money work for me?

Personally I don't really bother with ones at less than 2% because at that level it's better off going into a cash ISA (I'm a higher rate taxpayer and easily exceed the £500/year tax-free limit), but that threshold of being "worth it" will be different for everybody.

Ogordo

Surely £3000 being rotated around 12 x 2.5% RS accounts as they mature mean that you're getting 2.5% over the whole year on all of that money? Or am I missing something?

surreysaver

JohnRo wrote: »

I don't know the contribution limits on Virgin's RS account but in isolation the obvious answer is that any deposit account which pays an annual rate on the total amount, which the RS throttles, that results in a net interest paid gain.

£250 a month on 2.5% AER pays about £35

£250 x 12 = £3000 so anything at about 1.2% beats that RS.

I don't understand how you think money in an account paying 1.2% earns more than if it was in an account earning 2.5%?
By your calculations, if that £250 per month were earning 1.2%, that would be about £16.80 a year instead of about £35?

JohnRo

EachPenny wrote: »

Because every day that £1 is sitting in an account earning 2.5% interest, rather than a standard account paying half that amount, means you earn more interest on that pound overall.

It doesn't matter if it is only there for 28/30/31 days - it will still earn you more interest than if you left it languishing in the standard account.

Yes no dispute about that but the last pound in the last monthly contribution made into a RS account has had to wait 11 months to get in at that much higher rate and will only get 30 days or so of it in the entire year before being booted out and having to wait another 11 months to get back in again.

In other words it has quite some catching up to do in interest terms.

I'm looking at this comparison as the effect of these individual accounts in complete isolation on a fixed lump sum of cash which I admit is not very realistic and may be causing some of the misunderstanding.

All that matters, surely, is the interest earned in absolute terms as opposed to some percentage and whether a RS achieves a better result than a standard account at a lower rate will.

Let's not forget that a RS doesn't benefit from the effect of annual compounding either but that's a minor issue.

karlie88

JohnRo wrote: »

I don't know the contribution limits on Virgin's RS account but in isolation the obvious answer is that any deposit account which pays an annual rate on the total amount, which the RS throttles, that results in a net interest paid gain.

£250 a month on 2.5% AER pays about £35

£250 x 12 = £3000 so anything at about 1.2% beats that RS.

Here's a 'revolutionary' new idea - why not have both?

£3k in the instant access earning 1.2% and drip feed £250 per month (from the instant access account) in to the regular saver paying 2.5%.

surreysaver

JohnRo wrote: »

This is getting starnger and stranger, why would you put anything in a 2.5% RS that can otherwise be earning more interest in a regular deposit account, on an annual basis, that offers something close to half the RS headline interest rate on the whole amount for the whole year.

What you're saying doesn't make sense. If you've got £3k in an account paying 1.2%, and you use a regular saver, for every month you put £250 in the RS paying 2.5%, the £3,000 in the 1.2% account decreases by £250.
Therefore you haven't got the full £3,000 earning 1.2% for a year, because you are gradually increasing the amount of money earning 2.5% at the same time as you are decreasing the amount of money earning 1.2%

surreysaver

To keep the calculation simple, I have divided a year into 12 equal months.
£3,000 at the beginning of the year earning 1.2%, decreasing by £250 per month until the end of the year the balance is £0. Average balance over the year £1,500.
£0 at the beginning of the year earning 2.5% increasing by £250 per month until the end of the year the balance is £3,000. Average balance over the year £1,500.
£1,500 x 1.2% = £18
£1,500 x 2.5% = £37.50
£18 + £37.50 = £55.50
If you kept £3,000 in the account paying 1.2% for the year it would earn you £36. That's £19.50 less than if you used a regular saver.
Multiply that by 10 Regular Savers, that's nearly £200 a year better off. Nearly £400 if you have 20

JohnRo

surreysaver wrote: »

What you're saying doesn't make sense.

You're misunderstanding, I'm comparing them in isolation.

If you have £3000 in a 1.2% account it will earn more interest than a 2.5% RS account will because the premise is that the throttled cash outside the RS is earning no interest.

Call it an academic exercise or barking mad, I don't care.

EachPenny

JohnRo wrote: »

Yes no dispute about that but the last pound in the last monthly contribution made into a RS account has had to wait 11 months to get in at that much higher rate and will only get 30 days or so of it in the entire year before being booted out and having to wait another 11 months to get back in again.

But it doesn't wait around doing nothing (unless under your matress). It waits earning interest at the best rate you can get, which may be 2%, 2.5%, or even 5% in a different (RS) account.

If it sits in exactly the same kind of 'standard' account as your fixed lump sum, then it will earn exactly the same amount of interest for those 11 months as it would if it was part of that fixed lump sum.

JohnRo wrote: »

In other words it has quite some catching up to do in interest terms.

No, it matches the performance of your lump sum for 11 months and then gets a hyperboost overdrive for the last 30 days.

JohnRo wrote: »

I'm looking at this comparison as the effect of these individual accounts in complete isolation on a fixed lump sum of cash which I admit is not very realistic and may be causing some of the misunderstanding.

I understand what you are saying, but I'm not agreeing with your conclusion.

JohnRo wrote: »

All that matters, surely, is the interest earned in absolute terms as opposed to some percentage and whether a RS achieves a better result than a standard account at a lower rate will.

Yes, and amounts of money drip fed into a RS account at a higher % rate of interest will always earn more in absolute terms than leaving the money as a lump sum in a lower interest account.

JohnRo wrote: »

Let's not forget that a RS doesn't benefit from the effect of annual compounding either but that's a minor issue.

An irrelevant distraction if you don't mind me saying - since if you follow the multiple RS account approach, the interest earned on maturity on one RS account will start earning interest in another RS account as soon as it is deposited there.

Look at it another way. You have £10,000 in a deposit account earning 1.25%. Your bank writes to you saying they are offering a special fixed rate bond at 2.5% but only for six months, with a maximum deposit of £5000. Do you take them up on the offer, or do you ignore it because it is only for six months? And which approach would earn you more interest in absolute terms?