Is It Worth Moving From Chase at 1.5% to Virgin M Plus at 1.56%

Sensory

granta said:

where_are_we said:

 It`s the MSE way to optimise your interest. Remember the benefits of compound interest on multiple small amounts.

could you explain the compound interest benefits for multiple small amounts, not sure if I understand correctly?

Doesn’t make sense to me, except perhaps for penny rounding.

Absent of rounding, £100 at 1.56% AER is the same as £100 at 1.56% AER, regardless of whether that £100 is in a single account or £1 in 100 accounts.

where_are_we

granta said:

where_are_we said:

 It`s the MSE way to optimise your interest. Remember the benefits of compound interest on multiple small amounts.

could you explain the compound interest benefits for multiple small amounts, not sure if I understand correctly?

I should have added "over a long period", you earn interest on the interest itself. Many times on MSE, forumites say they couldn`t be bothered to earn a little extra interest on various top savings accounts and I understand that. But the accumulating effects of grabbing these multiple small amounts each year and then earning interest on the interest means the rate of growth gets faster over time. This effect is well known in the investment world but also applies to the savings world.

Daliah

where_are_we said:

granta said:

where_are_we said:

 It`s the MSE way to optimise your interest. Remember the benefits of compound interest on multiple small amounts.

could you explain the compound interest benefits for multiple small amounts, not sure if I understand correctly?

I should have added "over a long period", you earn interest on the interest itself. Many times on MSE, forumites say they couldn`t be bothered to earn a little extra interest on various top savings accounts and I understand that. But the accumulating effects of grabbing these multiple small amounts each year and then earning interest on the interest means the rate of growth gets faster over time. This effect is well known in the investment world but also applies to the savings world.

I am still not sure I understand why you'd need multiple small accounts for compounding. Unless you mean that people should not leave more than the maximum balance in an account which has a limit on the amount it pays interest on. For example, don't leave more than £1,000 in a Virgin M Plus current account, and not more than £25k in a linked saver. Is that what you mean?

granta

where_are_we said:

granta said:

where_are_we said:

 It`s the MSE way to optimise your interest. Remember the benefits of compound interest on multiple small amounts.

could you explain the compound interest benefits for multiple small amounts, not sure if I understand correctly?

I should have added "over a long period", you earn interest on the interest itself. Many times on MSE, forumites say they couldn`t be bothered to earn a little extra interest on various top savings accounts and I understand that. But the accumulating effects of grabbing these multiple small amounts each year and then earning interest on the interest means the rate of growth gets faster over time. This effect is well known in the investment world but also applies to the savings world.

Thanks, I understand the compounding but not the small amounts in lots of accounts part, as Daliah mentions too

Sensory

where_are_we said:

granta said:

where_are_we said:

 It`s the MSE way to optimise your interest. Remember the benefits of compound interest on multiple small amounts.

could you explain the compound interest benefits for multiple small amounts, not sure if I understand correctly?

I should have added "over a long period", you earn interest on the interest itself. Many times on MSE, forumites say they couldn`t be bothered to earn a little extra interest on various top savings accounts and I understand that. But the accumulating effects of grabbing these multiple small amounts each year and then earning interest on the interest means the rate of growth gets faster over time. This effect is well known in the investment world but also applies to the savings world.

Your original point mentioned three distinct but seemingly related points:

1. It’s prudent to have money in both Virgin and Chase, because of…
2. the benefits of compound interest…
3. on “multiple small amounts”.

Point #3 is the source of confusion. Compound interest compounds the fastest at the highest rate of interest, so those seeking to maximise net returns would want to utilise Virgin’s M Plus and linked saver first, before putting anything in Chase at all.

£1,000 at 2.02% +

£10,000 at 1.56%

is better than

£1000 at 2.02% +

£5,000 at 1.56% +
£5,000 at 1.5%

Looking at annual interest alone:

£20.20 + £156 = £176.20
is greater than
£20.20 + £78 + £75 = £173.20

In the above example, by deliberately splitting your savings to receive “multiple small amounts” you would lose £3 in the first year, and that £3 loss then negatively compounds.

RG2015

where_are_we said:

I have moved most of my cash back to Virginmoney MPSaver from Chase Savings.

It`s prudent to have money in both in case of issues. It`s the MSE way to optimise your interest. Remember the benefits of compound interest on multiple small amounts.

The implication here is that having money in both provides a compound interest benefit.

I suspect that this was not your intention as 1.56% will always beat 1.50%.

Therefore, ignoring the issue of spreading your money, VM will always be the better option, as it will yield a higher annual amount up to about £385 below its upper limit.

Edit. It will in fact yield a higher amount slightly above £25k  as the extra 0.06% will outweigh compounding and small amounts only earning 0.75%

Clearly though, it would make no sense to leave any money earning merely 0.75%.

[Deleted User]

I haven't seen this mentioned (maybe it was and I missed it) but if we're talking about compound interest then it makes a difference that the M Plus account has the interest added quarterly whereas Chase has the interest added monthly.

For example, on £20,000 you might assume that you'd get £12 more interest with Virgin than you would with Chase (1.5% of £20,000 is £300 whereas 1.56% of £20,000 is £312). Actually you would get £11.76 more interest due to the monthly/quarterly issue.

Now that doesn't amount to much of an argument for using Chase but it's something to keep in mind if interest rates change again (e.g. if Chase bumped its rate up to 1.56% then it would be the better deal again).

pafpcg

Daliah said:

pafpcg said:

I'd question though how many wish to keep £25,000 in an M+ savings account earning only 1.55% (together with the £1,000 earning 2% in the associated M+ current account).  Those that do, will probably have opened multiple M+ current & savings accounts since VM first offered them in early 2020.

I am aware that a few people have dozens of the £1K accounts but I doubt many would have 84 or 85 of them in a single name.....so one or two accounts with £24k-ish might be useful for a few of them

Apologies Daliah, obviously I didn't explain that point properly if you misunderstood it!

To obtain the M+ savings account, one has to open an M+ current account which itself offers 2% interest on the first £1000.  Therefore, that £1000 can be added to the £25,000 of the savings account's interest-generating capacity.  So three M+ current+savings accounts would offer a home for £78,000; four would offer substantially more than the maximum covered by FSCS. 

I too doubt that anyone has managed to open 84 M+ accounts - that would be about one new application every week from the introduction of the account in May 2020 until VM blocked multiple applications in January 2022!  There has been plenty of discussion elsewhere in this forum about the steps VM took to "discourage" customers from applying for multiple accounts without actually ever saying "No" until this year.  But my main point was that almost anyone today who has more than £25,000 needing an easy-access account would likely have known of the M+ current account in 2020 & 2021 and taken the appropriate steps...

Sensory

Deleted_User said:

I haven't seen this mentioned (maybe it was and I missed it) but if we're talking about compound interest then it makes a difference that the M Plus account has the interest added quarterly whereas Chase has the interest added monthly.

For example, on £20,000 you might assume that you'd get £12 more interest with Virgin than you would with Chase (1.5% of £20,000 is £300 whereas 1.56% of £20,000 is £312). Actually you would get £11.76 more interest due to the monthly/quarterly issue.

Now that doesn't amount to much of an argument for using Chase but it's something to keep in mind if interest rates change again (e.g. if Chase bumped its rate up to 1.56% then it would be the better deal again).

Virgin is 1.55% Gross and 1.56% AER
Chase is 1.49% Gross and 1.5% AER

AER = Annual Equivalent Rate, which takes into account compound interest and allows you to compare different rates regardless of how often interest is applied.

phillw

uk1 said:
Are you going to move it somewhere else for another £15? And then how often are you prepared to do all this to make a £100 in a year or perhaps even more? And what does this all mean for the amount of time you need to keep yourself informed about small movements in all these different offers with the reading and understanding overload all these fora present etc.

Yes. Yes. Yes.

Writing your post took time, which you didn't make any money from. While moving money round to get the best interest rate is fun.