460k for 5 months!

aroominyork

It means in Month 1 they will pay one-twelfth of 5.1%, so 0.425%, and add that to your account. If you started with £1000 you then have £1004.25. In Month 2 you earn interest on your original £1000 and on the £4.25, so £1004.25 becomes £1008.52, an increase of £4.27 this time. Because of the compound interest - the interest on the interest - at the end of the year you have £1052.20 so your money has grown 5.22%. If they just paid you 5.1% once - at the end of the year - you would have a gross of 5.1% and the same AER of 5.1%. But when they pay you monthly and you benefit from compounding interest, the effect is that the Annual Equivalent Rate is higher. My calcs say that five months at 5.1% gross turns £1000 into £1021.43, a return of 2.143%. Your £421k will turn into £430,022.

elkiedee

If you put all or most of £460K in your wife's name she will need 2 or 3 more accounts to get protection on the capital.

Yorkie1

elkiedee said:

If you put all or most of £460K in your wife's name she will need 2 or 3 more accounts to get protection on the capital.

Others have already stated that this wouldn't be needed, because of the higher protections for certain types of deposits, such as the OP's, which came from a house sale.

elkiedee

OK, I understand that I'm wrong about the protection - that's a good thing in this case I think. 

But on monthly interest compounding, my understanding is that bank's quoted AER is calculated to take account of this so the monthly rate will be slightly lower but if the interest is left in it will be the same after a year, not higher.

However, if OP's intention is as I understand to draw the monthly interest out to put towards rent, it won't get compounded. If the monthly rent is taken (for whatever purpose) OP needs to base his calculations on the rate that is actually offered monthly for each account, not on compounding assumptions. 

Andrew68

Just an update folks as I need a bit of extra advice, we are still waiting for our house to be finished and it will be ready in late August. 

We placed our funds from our house sale into an instant access account 5.11% on 1st Feb so our 6 months expires on 31st July. 

By then we will have around £429k in the account. 

Do we then have to create the best 5 bank accounts for interest and start splitting the money or is their an insurance policy we could pay to the bank where we will have the whole fund to protect for 1 month ? (August)  
appreciate any guidance offered here folks…🙏🏻🙏🏻

wmb194

Andrew68 said:

Just an update folks as I need a bit of extra advice, we are still waiting for our house to be finished and it will be ready in late August. 

We placed our funds from our house sale into an instant access account 5.11% on 1st Feb so our 6 months expires on 31st July. 

By then we will have around £429k in the account. 

Do we then have to create the best 5 bank accounts for interest and start splitting the money or is their an insurance policy we could pay to the bank where we will have the whole fund to protect for 1 month ? (August)  
appreciate any guidance offered here folks…🙏🏻🙏🏻

As it’s part of the Treasury, NS&I offers unlimited protection. Accounts with it are effectively pseudo-gilts.

eskbanker

Andrew68 said:

Do we then have to create the best 5 bank accounts for interest and start splitting the money or is their an insurance policy we could pay to the bank where we will have the whole fund to protect for 1 month ? (August)

As above, NS&I is the only option that would allow the money to be protected in a single account, so yes, splitting across multiple accounts is the alternative (three joint accounts would accommodate your balance) - I'm not aware of any insurance policy as such (other than FSCS), and it would need to be with an independent entity rather than the bank itself if you were wanting to insure against the bank's collapse....

Andrew68

Thanks folks. It all needs to be in my wife’s name as she isn’t currently working so gets the maximum tax free savings where as I would only get £500 before paying tax on savings as I understand it. 

Spreading across the 5 best instant access accounts in my wife’s name gives us 4.98% average so I need to know what ns&i is before deciding 🤔

wmb194

Andrew68 said:

Thanks folks. It all needs to be in my wife’s name as she isn’t currently working so gets the maximum tax free savings where as I would only get £500 before paying tax on savings as I understand it. 

Spreading across the 5 best instant access accounts in my wife’s name gives us 4.98% average so I need to know what ns&i is before deciding 🤔

https://www.nsandi.com/easy-access-saving

xylophone

 I need to know what ns&i is before deciding 🤔

https://forums.moneysavingexpert.com/discussion/comment/80508542/#Comment_80508542

Wasted my sweetness on the desert air.......