Regular Saver Vs Normal savings account?

Jamopy

I'm looking at moving some of my money out of my current account and into something where it will earn a bit more interest. To begin with the regular saver accounts looked really good for the interest rates, but after looking at it a bit more am i wrong in thinking getting lower interest on a lump sum for a whole year will still generate more interest than a higher interest taken on only the average of the money in a regular saver account over the whole year?

More specifically i was looking at the recommendations on the main site which have a regular saver at 2.5% with £500 max input per month (so £6k per year) Vs a general savings account with 1.45% interest for the same £6k for the year.

I get the normal savings account giving the slightly better return. Have i missed something?

molerat

£1 will earn Xp interest each day that it is in a savings account. That £1 will earn more per day in a 2.5% account than a 1.45% account. The trick is maximising the amount of interest your money is earning per day and moving it around accordingly usually keeping it in the best easy access account and moving monthly to the regular saver.
https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/#badpress

bowlhead99

Jamopy wrote: »

I get the normal savings account giving the slightly better return. Have i missed something?

Yes you have missed something.

If you have £6k available all year and it sits in an account at 1.45% it will get a little under £90 for the whole year.

If you gradually feed £6k into a 2.5% account with a monthly cap on how much you are allowed to add it will take a while to get it into the account, and only the first monthly chunk will get a whole year's worth of interest, the next chunk only gets eleven months of interest, and so on until the last chunk only gets a months worth of interest. On average, the pile of money is only sitting in the regular saver account for a little over half a year, so you will only earn a little over £80.

If you compare it like that, then you would want the £90 instead of the £80, right?

But what you are missing is the fact that in the second scenario, you've only calculated the interest on the bit of money that's in the regular saver at a point in time, starting off at £500 and going up to the £6k. Of course they'll only pay you interest on the money that's actually in the account. But What about the part of the £6k that *isn't* in the regular saver at a point in time? Is it just going to be in a bin bag under your bed, earning no interest, waiting to be moved into the regular saver account?

I expect it isn't. You will have it in the highest paying easy access account you can find.

So, yes it's true that putting £6k in a 1.45% account all year can be better than gradually putting £6k into a regular saver 2.5% account over the course of a year while keeping the rest in a bin bag at 0%.

But really what you should be doing is comparing putting £6k in a 1.45% all year against putting £6k in the 1.45% account and gradually moving it over to the 2.5% account as fast as the account rules allow.

If you think about it, it MUST be better to have some of your money earning 1.45% and gradually move it over to an account paying 2.5%,. rather than have your money earning 1.45% and leave it there all year so it never earns more than 1.45%.

crumpetman

Use the dripfeed savings calculator

https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/?&_ga=2.177341222.2049362916.1576622651-501113476.1531498843#dripfeeding

You would get £121 interest

Jamopy

Good points, both of you.