Comparing regular saver vs instant access like Marcus

dont_use_vistaprint

When you have cash already to save one option reccomended is to open a regular saver and move the maximum in each month. 
How do you work out the effective interest rates to see how they stack up against instant access 
e.g
£500 pcm for 12 months at 1.55% gives £6050.61
£6000 in instant access for 12 months at 0.84% gives £6050.40

But for comparing 1,2,3,4 & 5 year regular savers vs bonds etc is there a simple formulae to use or way to determine the effective interest rate in this scanario

RG2015

MSE have a calculator on this page.

https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/

arsenalboy

calculator is of no use to OP  because it assumes an understanding of reg savers. 
OP needs to understand that Reg Saver is drip fed each month and some of the money will stay in the Marcus account earning interest on top of £50.61 quoted.

RG2015

arsenalboy said:

calculator is of no use to OP  because it assumes an understanding of reg savers. 
OP needs to understand that Reg Saver is drip fed each month and some of the money will stay in the Marcus account earning interest on top of £50.61 quoted.

Which is fully explained on the the same link.

eskbanker

dont_use_vistaprint said:

When you have cash already to save one option reccomended is to open a regular saver and move the maximum in each month. 
How do you work out the effective interest rates to see how they stack up against instant access 
e.g
£500 pcm for 12 months at 1.55% gives £6050.61
£6000 in instant access for 12 months at 0.84% gives £6050.40

If you start with £6K in a 0.84% account and end with that same £6K in a 1.55% account, drip-feeding linearly along the way, half of the money will on average be in each account during the year, so a rough approximation is £6K times the average interest rate, i.e. halfway between 0.84% and 1.55%, which is about 1.2%, giving an interest figure of £72. 

dont_use_vistaprint

You misunderstood.... Its a different £6K, its a comparison of interest rates in accounts where you can hold capital , vs accounst accounts where you start with zero an ddrop feed

dont_use_vistaprint

RG2015 said:

MSE have a calculator on this page.

https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/

Perfect, thanks. I diddnt know the calc on here had the option to calculate drip feeding from another account

eskbanker

dont_use_vistaprint said:

You misunderstood.... Its a different £6K, its a comparison of interest rates in accounts where you can hold capital , vs accounst accounts where you start with zero an ddrop feed

It's still not clear to me exactly what you're trying to measure then - I was just working with the numbers in your example scenario to give a simple rough and ready way of working out the effective interest earned by drip-feeding a regular saver from a standard account, producing a figure almost identical to that generated by the MSE calculator (any such calculation will have a margin of error anyway).  If you believe that drip-feeding a 1.55% regular saver from a 0.84% easy access account gives a (significantly) different answer from 1.2% of the amount transferred over the year then please explain why....

refluxer

I've not had any regular savers before so this is useful discussion for me. I had also looked at similar figures to the OP's examples and wondered why anyone with a lump sum would bother with a regular saver, but had overlooked the fact that the money not yet drip-fed into the regular saver could also be earning interest from the originating account. That account would have to be a higher interest but accessible account though, which would rule out many current accounts.

Judging by the MSE calculator, you'd be £22 better off by drip-feeding using the example amounts and interest rates above, provided you're not an additional-rate tax payer. It's tempting to extend this to the 'bank-linked' regular savers too, but the comparison presumably falls down due to the drip-feeding current account often paying little to no interest ?

My take on it is that regular savers are a no-brainer for those people without lump sums who want to save some of their salary into a higher interest account each month but they're not quite as attractive for those with larger lump sums looking for somewhere to invest, although setting up multiple regular savers can still be an attractive option for those willing to take the time to do so ?

YorkshireBoy

refluxer said:

That account would have to be a higher interest but accessible account though, which would rule out many current accounts.
...the comparison presumably falls down due to the drip-feeding current account often paying little to no interest ?

You clearly wouldn't keep the lump sum in a current account paying "little to no interest". You'd make the regular saver deposit from the current account, after first sending the funds from the interest paying savings account to cover it.

You're correct to say that you only get out what you put in, and many on here have multiple regular savers, ideally one or two maturing each month to even out the cash flow. These people will have almost all their cash savings making >1.2%. So you can see that when you have a pot of circa £50K then the extra 0.4% (as an example) equates to £200/year. For completing an online application form, say, twice per month and setting up a standing order or two.

Eco_Miser

refluxer said:

I've not had any regular savers before so this is useful discussion for me. I had also looked at similar figures to the OP's examples and wondered why anyone with a lump sum would bother with a regular saver, but had overlooked the fact that the money not yet drip-fed into the regular saver could also be earning interest from the originating account. That account would have to be a higher interest but accessible account though, which would rule out many current accounts.

Higher than what? If it was higher than the Regular Saver, you'd just keep it all in the accessible account.

refluxer said:

Judging by the MSE calculator, you'd be £22 better off by drip-feeding using the example amounts and interest rates above, provided you're not an additional-rate tax payer. It's tempting to extend this to the 'bank-linked' regular savers too, but the comparison presumably falls down due to the drip-feeding current account often paying little to no interest ?

If the current account pays less interest than an alternative easy access account then the drip-feed money is in the current account for less than a day, depending on how exactly it is moved from Easy Access to Current to RS.

refluxer said:

My take on it is that regular savers are a no-brainer for those people without lump sums who want to save some of their salary into a higher interest account each month but they're not quite as attractive for those with larger lump sums looking for somewhere to invest, although setting up multiple regular savers can still be an attractive option for those willing to take the time to do so ?

In the current interest climate, the actual amounts may be too small to be worth bothering about, but in principle each pound, each day in a higher rate account, such as a RS, is better than in a lower rate account.

Ultimately, one might have 12 RSs, each maturing in a different month, and distributing the matured account monies to the other 11 and a new one, in a perpetual cycle.