Savings rate > Loan rate

k6chris

You can now get 4.55% interest on a fixed rate saver over 5 years, and a personal loan over the same period for 3.4%.  Last time I saw this oddity the provider of both was Northern Rock.  Is this an opportunity or a portent of doom??

https://www.tandem.co.uk/products/savings/fixed-saver

https://www.santander.co.uk/landing/personal-loans/open?

Ebe_Scrooge

In principle it could be an opportunity.  Do bear in mind though, the "representative" rate advertised for the loan is only given to 51% of successful applicants.  There's a good chance that if you were to apply, you'd be offered a loan at a significantly higher APR.

Martico

Barclaycard have offered me a money transfer payable over 18 months at a one-off 2.6%, while Barclays are offering an easy access savings rate of 5.12%

surreysaver

Sounds like 'Stoozing' may be making a comeback

Bigwheels1111

k6chris said:

You can now get 4.55% interest on a fixed rate saver over 5 years, and a personal loan over the same period for 3.4%.  Last time I saw this oddity the provider of both was Northern Rock.  Is this an opportunity or a portent of doom??

https://www.tandem.co.uk/products/savings/fixed-saver

https://www.santander.co.uk/landing/personal-loans/open?

4.6% Close Brothers

https://www.closesavings.co.uk/personal/savings-accounts/fixed-rate-bond/5-year

JuliusCaesar

surreysaver said:

Sounds like 'Stoozing' may be making a comeback

Never went away actually, but now more attractive.

mark_cycling00

Perhaps the "behind the scenes finance stuff like swaps" for the loan happened before the truss-combust disaster and the savings stuff happened after? So one rate is higher

I don't know this for sure, it's a thought 

Thisisnotasmile

Let's say I get the rates quoted in the OP for a £10,000 loan which I tie up immediately in the fixed rate savings account. I've committed £181 of my income each month to paying back the loan to effectively earn me 4.55%-3.4%=1.15% plus the £10,000 back at the end of the period. Why wouldn't I just put my £181 into easy access/regular savers for 5 years instead?

Honest question. I feel like I might be missing something here. 

ZeroSum

Don't forget the loan requires repayments, so you can't just lock the savings away for 5 years
Once you factor in cash flow, (you have to keep a years worth in easy access (combined with notice) accounts, then have a fix mature each year.

So probably end up just breaking even unless easy access rates go above 3%

It's easier to do this sort of stuff with 0% credit cards, making min repayment, then the balloon payment at the end of the term, so you can lock more away in 12/18 month fixes

YellowStarling

Thisisnotasmile said:

Let's say I get the rates quoted in the OP for a £10,000 loan which I tie up immediately in the fixed rate savings account. I've committed £181 of my income each month to paying back the loan to effectively earn me 4.55%-3.4%=1.15% plus the £10,000 back at the end of the period. Why wouldn't I just put my £181 into easy access/regular savers for 5 years instead?

Honest question. I feel like I might be missing something here. 

I haven't crunched the numbers to model your argument through but just hopping on to point out a couple of reasons why the stoozing aspect (i.e. loan upfront) is appealing (don't confuse this with definitively the better way though):

1) The £10,000 is earning interest on its full amount from day 1, and compounding of course.  To drip-feed amounts each month of the same value as the loan repayments over the 5 year duration, you'd have to factor in requiring roughly double the net interest rate to break even (this is where the modelling is needed, as I'm aware the loan repayment amount is higher than £10,000 divided by 60 months due to the 3.4% APR interest and so your equivalent monthly contribution would likewise be higher than merely dividing £10,000 over 60 months), but you get my point that not all of your 60 * £181 will be earning interest for the full 60 months

2) Whatever the interest rate turns out to be in (1) above, you'd be relying on being able to average this rate (or better it) across 5 years into the future if using easy access/regular savers.  This can get tricky as EA tend to be variable rates and RS tend to be shorter in term.  Not impossible, and you may even find a fixed RS type saver for the same 5 years that you could contribute to monthly, and/or the variable nature works to your advantage if the interest rates grow higher in the future (for at least long enough to pull your average rate up)

Exodi

Since I'm at the computer with nothing better to do:

Loan: Santander, £10,000 over 5 years at 3.4%, monthly payment of £181.24
Total repayable: £10,874.40, net cost £874.40 over 5 years.

Fixed savings account: Close Brothers, £10,000 over 5 years at £4.6%, immediate deposit of £10,000.
Total at maturity = £12,521.56, increase of £2,521.56.

Net increase of £1,647.16 but requires you to make monthly payments of £181.24.

If you were instead to deposit the £181.24 monthly directly in a savings account over the 5 years:

Easy access interest rate:
1% = £11,155.38 (net increase of £1,155.38)
1.5% = £11,299.37 (net increase of £1,299.37)
2% = £11,445.75 (net increase of £1,455.75)
2.5% = £11,594.56 (net increase of £1,594.56)
3% = £11,745.86 (net increase of £1,745.86)

At about 2.675% easy access rate, not borrowing and just putting the money in easy access savings pays more. You could increase this consdierably if you were to keep dripfeeding the capital into fixed products with higher interest rates, and still have all the money available at the end of the 5 years.