Is it worth putting the full 12 months in reg saver?

MeanDean

I have a First Direct (7%) regular saver in which I put £300 a month. This money will come from, over time, a 45 easy access account. Overall the FD account will pay the equivalent of 3.5%. Obviously most of the interest comes from the initial payments as they have been in there longer e.g. month 1 will accumulate credit at 7%, month 2 will accumulate credit at 6.41% (7%/12 x 11), month 3 at 5.83% (7%/12 x 10), etc. Month 5 will give me interest at just over 4%, at which point if I remove money from my 4% easy access account to put in my regular saver then I'll be losing interest as I will be paid less interest for and money placed in my regular saver after month 5. 

My point is, beyond a certain point it, may not be worth adding any more cash into a regular saver when better returns can be found elsewhere and that only the initial payments may be worth the trouble. A 7% interest rate may be enticing, but is only worth it during the period in which the interest it returns is able to exceed other easy access accounts.

Am I being thick here, or just missing something?

Dazed_and_C0nfused

Maybe I'm missing some nuance here but won't £300 added at month 5 still entitle you to 7% for the remaining 7 months?

Isn't that better than 7 months at 4%?

Section62

MeanDean said:

I have a First Direct (7%) regular saver in which I put £300 a month. This money will come from, over time, a 45 easy access account. Overall the FD account will pay the equivalent of 3.5%. Obviously most of the interest comes from the initial payments as they have been in there longer e.g. month 1 will accumulate credit at 7%, month 2 will accumulate credit at 6.41% (7%/12 x 11), month 3 at 5.83% (7%/12 x 10), etc. Month 5 will give me interest at just over 4%, at which point if I remove money from my 4% easy access account to put in my regular saver then I'll be losing interest as I will be paid less interest for and money placed in my regular saver after month 5. 

My point is, beyond a certain point it, may not be worth adding any more cash into a regular saver when better returns can be found elsewhere and that only the initial payments may be worth the trouble. A 7% interest rate may be enticing, but is only worth it during the period in which the interest it returns is able to exceed other easy access accounts.

Am I being thick here, or just missing something?

Your maths is wrong.

Each pound will be earning the equivalent of 7% per annum for each day it is in the account.

It follows that even if the money is only in the account for one month, if the interest rate is 7% PA then it will earn more interest than leaving it in an easy access account earning (say) 4%.

The interest rate doesn't decrease through the year, just the number of days the money can be earning interest.

p00hsticks

I'm not sure that the T&Cs will let you stop making payments completely before the year is up, but you can reduce the amount to the minimum £25. 

MeanDean

Good point. You're right of course, I got totally confused by thinking the interest rate was less when actually it wasn't, it's just the time the money is invested. Doh! :-)

eastcorkram

I think if you stop the deposits part way through, you won't get the 7% on the money that you had paid in anyway.

jaypers

Yes, it’s worth it for the full 12 months. You obviously get one twelfth of 7% for every £300 each month. It’s still 7% but people get confused how regular savings work. Same applies if you open a 6 months fixed…..take Atom as an example……4.85% so if you locked in £10,000 you wouldn’t get 4.85% of the £10k, you would get half that as interest rates are represented annually. 

AmityNeon

This perfectly exemplifies why you shouldn’t over complicate the math with approximate ‘effective’ rates. You’re not the first to make the mistake of believing you would be better off in a standard easy access account in some form (whether completely or just in the latter months).

The key point, what actually happens in practice, is much simpler: interest is calculated daily at the published rates, and 7% is higher than 4%.

retiringtoosoon

it's a regular saver and therefore peanuts in the grand scheme of things

Merlin139

I have Reg Saver accounts that pay rates of 5%, 5.5%, 6.17% and 7% all of the money to feed these accounts comes from a savings account that pays 4%

Between myself and my wife we have 12 Reg Saver accounts. We just move money around to make money.

Same as having 0% credit cards. Do our usual spending on the 0% cards and put the same amount into a savings account that pays 4% I just wish the credit score companies could see that the money on the cards is a 0% and would stop advising me to move the money to 0% cards!

wiseonesomeofthetime

MeanDean said:

...
My point is, beyond a certain point it, may not be worth adding any more cash into a regular saver when better returns can be found elsewhere and that only the initial payments may be worth the trouble. A 7% interest rate may be enticing, but is only worth it during the period in which the interest it returns is able to exceed other easy access accounts.

Am I being thick here, or just missing something?

If Easy Access accounts exceed 7% AER then the UK really has gone bang tbf !!!!