First Direct Saver - Misunderstanding percentage return

MrRP

Hi,

First apologies that this is a simple question which probably shouldn't need asking!

I am about to open the First Direct regular saver account which has 7% interest, but I am confused by simple difference between figures I'm getting.

Advertised rate is 7% but they say if £3,600 deposited over 12 months then new total will be £3,736.60 so £136.60 earned through interest.  But if I do the calculation myself this should be £252.00

What am I misunderstanding?

Thanks,

la531983

Because you are depositing 300 per month rather than 3600 at the start?
So you can't just take 7% of 3600 because that isn't the balance for the whole 12 months.

Balance after month 1 is 300 quid, after month 2 is 600 (plus the month 1 interest) etc etc. Interest is worked out daily and likely paid monthly. 

masonic

As above, you cannot put a lump sum of £3,600 into the regular saver. You must fund it with no more than £300 per month, and you only get interest on money while it is in the account. There is a regular saver calculator here: https://www.moneysavingexpert.com/savings/regular-savings-calculator/

surreysaver

la531983 said:

Because you are depositing 300 per month rather than 3600 at the start?
So you can't just take 7% of 3600 because that isn't the balance for the whole 12 months.

Balance after month 1 is 300 quid, after month 2 is 600 (plus the month 1 interest) etc etc. Interest is worked out daily and likely paid monthly. 

Calculated daily, paid annually as are the vast majority of regular savers 

MrRP

Hi,

Thanks for the replies.  7% of £300 is £21 which over 12 months makes £252 so I am still confused?

[Deleted User]

Because the second month's payment only earns 11 month's interest, the third payment only earns 10 month's interest and so on. 

MorningcoffeeIV

MrRP said:

Hi,

Thanks for the replies.  7% of £300 is £21 which over 12 months makes £252 so I am still confused?

Yes, you are still confused.

The rate is an annual one, not monthly.  You only earn interest on the balance at any given point.

In simplified terms, your average balance for the year wil be £1800 (you start at 0 and finish at 3600), so you get 7% on that.

Hal17

Re-read the reply from la531983 above. If you only deposit your first £300 and then make no further contributions you will get 7% interest for 12 months on only £300, so a total of £21.00 for the year.

Sg28

MrRP said:

Hi,

Thanks for the replies.  7% of £300 is £21 which over 12 months makes £252 so I am still confused?

Only the first 300 is in the account for 12 months. 

The second 300 will only earn interest for 11 months. Third 300 for 10 months and so on...

TadleyBaggie

So the first £300 indeed will get 7%, over the whole year! It's 7% per annum (not month). So it earns £21 after the first year. The second £300 is only invested for 11 months so earns about £19.25, and so on. The £300 invested in month 11 only earns roughly £1.90 after the first year is reached.

Another way to look at it is, the average holding over the year is £1800, 7% of that is £126.

dealyboy

An alternative way of looking it is 78 month's interest on £300 ...

78 x ( 300 x (0.07 / 12) ) = 136.50

... thanks to @[Deleted User].