Regular Savings Accounts

bensmum_2

The banks and building societies advertise much higher rates for the regular savings accounts, with a min/max amount to pay in each month.

Obviously the top rate is only paid on the first instalment (which stays in for the full 12 months), and as each payment is added the interest is for 11. 10, 9 months etc, so effectively for the whole amount invested the rate you get ends up at about half the advertised rate.
I have been thinking therefore that it may be best just to pay the  maximum in for the first six months, then, the minimum for the final six months, and then just look for a similar deal elsewhere and repeat.

Is anyone able to calculate what rate you would therefore get on your whole money invested?

Thanks

jaypers

So much misunderstanding about these accounts. You are getting the full rate advertised on everything that is paid into the account. Interest rates are based on an annual figure so if you are attracting that rate for a shorter period, you have to calculate appropriately. Lowering how much you put in later in the term serves no logic what so ever. 

Ball park calculation on what you will get over the year is to halve the annual amount and calculate the full interest rate on that. So £300 per month is £3600 over a year. Half of that is £1800. If the rate is 7%, that’s £126 over a year. Actually slightly above that as you are getting the rate from day 1 on your first payment. 

ColdIron

bensmum_2 said:

Obviously the top rate is only paid on the first instalment (which stays in for the full 12 months),

So obvious it's wrong. The advertised rate (per annum) is paid for every penny in the account but not every penny is in the account for an annum

This question is asked endlessly on this board, you're not the first and won't be the last to misunderstand how these accounts work

A similar question was asked earlier today

https://forums.moneysavingexpert.com/discussion/6454752/is-it-worth-putting-the-full-12-months-in-reg-saver

bensmum_2 said:

Is anyone able to calculate what rate you would therefore get on your whole money invested?

Yes. It is the advertised rate

Speculator

Forget regular savers.

How about a 4% annual interest instant access account. If you deposited £1 on day 1 and paid in £9999 on day 364, do you expect to get £400 back in interest?

bensmum_2

But what I am saying is enjoy the say 8% on that first month's instalment, but perhaps just add £1 on the last month which is only going to get 1/12 of that 8%

SonOfPearl

bensmum_2 said:

But what I am saying is enjoy the say 8% on that first month's instalment, but perhaps just add £1 on the last month which is only going to get 1/12 of that 8%

Each pound you deposit (whenever you deposit it) will earn the same amount per day for the amount of time it is in your regular saver. The last month's deposit doesn't earn 1/12 of the rate - it earns the same amount per day. 

Try looking at the guide on this site about regular savers if you are still confused.  

Doctor_Who

bensmum_2 said:

But what I am saying is enjoy the say 8% on that first month's instalment, but perhaps just add £1 on the last month which is only going to get 1/12 of that 8%

Where else would you put the money in the last month? An EA account would pay 1/12 @ ~4%, so 1/12 @ 8% is twice as good!

jaypers

Doctor_Who said:

bensmum_2 said:

But what I am saying is enjoy the say 8% on that first month's instalment, but perhaps just add £1 on the last month which is only going to get 1/12 of that 8%

Where else would you put the money in the last month? An EA account would pay 1/12 @ ~4%, so 1/12 @ 8% is twice as good!

I think this is all either a wind up or a lost cause! 

Petriix

Despite the scathing responses, the OP has a reasonable point: that you should put your money in the account paying the highest interest available. In a period of rising interest rates it's likely that a regular saver started say 8 months ago won't be paying as much as one taken out today. As an example I've been paying into a Halifax regular savers for each of my children but I recently switched to putting the money into their HSBC savings accounts as this was paying higher interest than the older issue regular savers. Now they've reset, the interest in the regular saver is higher again so I'm paying into that again. 

eskbanker

Petriix said:

Despite the scathing responses, the OP has a reasonable point: that you should put your money in the account paying the highest interest available. In a period of rising interest rates it's likely that a regular saver started say 8 months ago won't be paying as much as one taken out today. As an example I've been pa into a Halifax regular savers for each of my children but I recently switched to putting the money into their HSBC savings accounts as this was paying higher interest than the older issue regular savers. Now they've reset, the interest in the regular saver is higher again so I'm paying into that again. 

If OP's question had been 'if I'm funding a regular saver and one with a higher rate is launched, but I can't afford to pay into both, what should I do?' then effectively jumping ship would indeed often be sensible, dependent on when the money would be needed, but that didn't appear to be what they were asking, and instead they repeated the familiar trope about "effectively for the whole amount invested the rate you get ends up at about half the advertised rate".

Money_Grabber13579

Petriix said:

Despite the scathing responses, the OP has a reasonable point: that you should put your money in the account paying the highest interest available. In a period of rising interest rates it's likely that a regular saver started say 8 months ago won't be paying as much as one taken out today. As an example I've been paying into a Halifax regular savers for each of my children but I recently switched to putting the money into their HSBC savings accounts as this was paying higher interest than the older issue regular savers. Now they've reset, the interest in the regular saver is higher again so I'm paying into that again. 

I think the OP’s question has been completely missed by those who want to be pedantic about how regular savers work. Yes, they are frequently misunderstood and some of the OP’s comments may indicate an element of that misunderstanding but not to the extent that they arrive at the incorrect outcome (I.e. why is my interest only half of what I expected?)

To exaggerate the point I think the OP was making, if there was only £250 available each month and assuming there were at least 12 possible regular savers with decent interest rates, would it be better to open a regular saver and pay in £250 in month one, and then only pay in the minimum balance in each of the subsequent 11 months? For month two, they would then open a new regular saver (month one for that particular regular saver), pay in £250 and again, only the minimum amount in future months. Repeat.

To me, this seems like it would get the maximum possible amount of interest because in that case, the money will be in each regular saver for the maximum amount of time. Now, the OP is talking about whether it is better to adopt the above approach every 6 months and I think I’d agree that it is - in essence, if there is insufficient money to operate all the “good” regular savers, it seems to make sense to avail of them all anyway, but only pay into them for the first number of months (as appropriate).