Regular Savings Accounts: The Best Currently Available List!

ColdIron

NorthYorkie said:

RG2015 said:

NorthYorkie said:

Wheres_My_Cashback said:

NorthYorkie said:

Before getting carried away with the headline rates being quoted, just remember to halve the rate to find the approximate effective rate for the year.
Your first monthly deposit will get, say, 5% for the full year, but the second deposit will only get it for 11 months i.e. 4.58%, the third deposit for 10 months i.e. 4.16%, and so on. The twelfth will only get 1 months interest, 0.41%. 

As you and the majority of people already know the effective rate on all funds in the account is what's advertised so in your  example it's 5%.

A better way to put it would be that assuming a credit payment on the 1st each month you get 5% for 365 days for the first credit, 5% for 334 days on the next credit, 5% for 304 days on the next credit etc 

Don't think this click bait needs any further discussion here

Perhaps you had better tell this to Martin Lewis - see point 5 of this; https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/

He says...

• 5.You'll earn what looks like half the headline interest rate

It only looks like half the rate. It isn't actually half the rate.

There is a big difference.

What is the difference?

Well one is a confected approximation and the other is very close to what what actually happened

• With your method you would receive half the rate (which nobody paid) on an amount (that was never fully deposited)
• With the other you use the actual rate (the headline rate that was paid) on an amount that was deposited (the average annual balance)

One problem that can arise from the first, and this happens a lot on this board, is that someone looking at the first would see 2.50% on, say, £3,000 and conclude that they  would be better off putting their £3,000 in an account paying 3.00% which would obviously be a mistake. That wouldn't happen with the second and a 5.00% rate

If you hang around this board long enough you will see many many posts from people who think they have been diddled and call regular savers a sort of scam. It's probably the single most common source of confusion here, perhaps over 1 post a week

dgpur

NorthYorkie said:

Bridlington1 said:

NorthYorkie said:

Section62 said:

NorthYorkie said:

Before getting carried away with the headline rates being quoted, just remember to halve the rate to find the approximate effective rate for the year.
Your first monthly deposit will get, say, 5% for the full year, but the second deposit will only get it for 11 months i.e. 4.58%, the third deposit for 10 months i.e. 4.16%, and so on. The twelfth will only get 1 months interest, 0.41%. 

The "effective rate" is whatever the headline rate is.  You don't have to halve it.

The amount of interest earned can be estimated based on around half the final balance - assuming regular pay-ins of the same amount - as the average balance over the time period will be about half.  On which the headline interest rate is being paid.

In your example, the last payment would get 5% paid on a pro-rata basis for one month.  The interest rate isn't 0.41%.  It is that the duration the money is earning 5% is 1/12th of a year.

I think we are saying the same thing in different ways! Working out the interest at 5% on half the final balance (say £300 on a £50 pm account) equals £15 interest, whereas applying half the interest rate (2.5%) on the actual final balance of £600 also produces £15 interest. QED.

Though if I may be pedantic in reality a 5% regular saver would have an average balance of £325 over the entire year assuming you open the account on 1st of the month and find it on 1st of each month. 5% of £325 is £16.25. Thus you would earn the equivalent of 2.7083333333....% interest on the final balance over the entire year.

Yes, you may.

If I may be permitted to do likewise, I did say 'approximate' effective rate.

The rate is either the full amount on new money (e.g. salary), deposited here rather than an account paying 3.x%. or it is money taken from a lower paying account, so interest it has been earning, plus its new rate, is what you need to look at. Either way your money earns more over a year than leaving it in/putting it in to an account paying 3.x%. So your ‘effective rate’ is not half the stated interest.

Section62

NorthYorkie said:

Section62 said:

NorthYorkie said:

Before getting carried away with the headline rates being quoted, just remember to halve the rate to find the approximate effective rate for the year.
Your first monthly deposit will get, say, 5% for the full year, but the second deposit will only get it for 11 months i.e. 4.58%, the third deposit for 10 months i.e. 4.16%, and so on. The twelfth will only get 1 months interest, 0.41%. 

The "effective rate" is whatever the headline rate is.  You don't have to halve it.

The amount of interest earned can be estimated based on around half the final balance - assuming regular pay-ins of the same amount - as the average balance over the time period will be about half.  On which the headline interest rate is being paid.

In your example, the last payment would get 5% paid on a pro-rata basis for one month.  The interest rate isn't 0.41%.  It is that the duration the money is earning 5% is 1/12th of a year.

I think we are saying the same thing in different ways! Working out the interest at 5% on half the final balance (say £300 on a £50 pm account) equals £15 interest, whereas applying half the interest rate (2.5%) on the actual final balance of £600 also produces £15 interest. QED.

No, we are saying very different things.  Only the resulting figure is the same.

As ColdIron suggests, there's lots of people who believe RS accounts are some form of scam because the interest rate is only half the advertised rate.  This usually stems from the mistaken expectation the interest paid should equal the final balance multiplied by the interest rate.

Suggestions about "effective" interest rates feed into this mistaken belief.

The reason why these accounts pay about half the total interest some people expect is because they had roughly half the final amount of money in the account on average.  Not because the interest rate isn't what the bank claimed.

If you had to pay the full final balance into the account on day 1, but only earned interest on an increasing balance as each month passed, then it would make sense to talk about effective rates.  But the way RS accounts work isn't like that, they don't have to be fully funded on day 1, therefore what might be called the "effective rate" is whatever the headline rate is.

surreysaver

NorthYorkie said:

Section62 said:

NorthYorkie said:

Before getting carried away with the headline rates being quoted, just remember to halve the rate to find the approximate effective rate for the year.
Your first monthly deposit will get, say, 5% for the full year, but the second deposit will only get it for 11 months i.e. 4.58%, the third deposit for 10 months i.e. 4.16%, and so on. The twelfth will only get 1 months interest, 0.41%. 

The "effective rate" is whatever the headline rate is.  You don't have to halve it.

The amount of interest earned can be estimated based on around half the final balance - assuming regular pay-ins of the same amount - as the average balance over the time period will be about half.  On which the headline interest rate is being paid.

In your example, the last payment would get 5% paid on a pro-rata basis for one month.  The interest rate isn't 0.41%.  It is that the duration the money is earning 5% is 1/12th of a year.

I think we are saying the same thing in different ways! Working out the interest at 5% on half the final balance (say £300 on a £50 pm account) equals £15 interest, whereas applying half the interest rate (2.5%) on the actual final balance of £600 also produces £15 interest. QED.

I think you understand what you are saying, but you are saying it in a way which confuses people who don't get it.
5% is the headline rate, and 5% is what you're being paid. But not on a balance of £3k. It is being paid on an average balance of £1,950 (0.65 of the final balance of £3k, assuming money goes in at the beginning of each month)

happybagger

It never ceases to amaze me that some people think a financial institution should pay them interest on money they won't deposit for another 11 months, and when they don't, it's a scam.

When I saw this earlier today I thought, I won't be drawn in, but I have 

Anyways, my rule of thumb is seven-twelfths. So I'd calculate 12x £250 monthly payments on 5% as giving me £87.50 for example.

housebuyer143

happybagger said:

It never ceases to amaze me that some people think a financial institution should pay them interest on money they won't deposit for another 11 months, and when they don't, it's a scam.

When I saw this earlier today I thought, I won't be drawn in, but I have 

Anyways, my rule of thumb is seven-twelfths. So I'd calculate 12x £250 monthly payments on 5% as giving me £87.50 for example.

Ha ha agreed. I don't really see it as half the rate because the money I am putting into I earn monthly, so I am getting the headline rate on the money I put into it, which is earned every month.
It's obviously completely different to an easy access where you have a large sum from the get go and might sit there for the year gaining the entire rate at say 3.8%.
At the end of the day, say I have £500 to save this month, if I put it in my easy access that £500 gets 3.8%, if I put it in my skipton regular saver it gets 7.5%. They are good accounts if you use them as intended.

Contador38

It is like investing £1,000 0n 1st Jan on an easy access paying 5%. annualy.
On 2 Jan, take out £4,999.
On 30 Dec ,put back £4,999 so that on 31 Dec, the balance is now again £5,000.
I guess some people would expect to get 5% paid on £1,000 then.

fourmarks

Why is it a scene from Airplane keeps coming to mind?

kaMelo

fourmarks said:

Why is it a scene from Airplane keeps coming to mind?

I'm intrigued as to which but assuming it's not autopilot?

TheBanker

housebuyer143 said:

happybagger said:

It never ceases to amaze me that some people think a financial institution should pay them interest on money they won't deposit for another 11 months, and when they don't, it's a scam.

When I saw this earlier today I thought, I won't be drawn in, but I have 

Anyways, my rule of thumb is seven-twelfths. So I'd calculate 12x £250 monthly payments on 5% as giving me £87.50 for example.

Ha ha agreed. I don't really see it as half the rate because the money I am putting into I earn monthly, so I am getting the headline rate on the money I put into it, which is earned every month.
It's obviously completely different to an easy access where you have a large sum from the get go and might sit there for the year gaining the entire rate at say 3.8%.
At the end of the day, say I have £500 to save this month, if I put it in my easy access that £500 gets 3.8%, if I put it in my skipton regular saver it gets 7.5%. They are good accounts if you use them as intended.

I do the same - I haven't gone to town with RS accounts. I just have three, and the money that is paid in is my surplus income for the month (two by Standing Order for the max amount, and the third by manual transfer using whatever extra money I want to save within its monthly allowance). I think this how RS accounts are designed to be used... but I also think we are unusual on this thread in using them this way?