Savings calculator

BPauseMSE

I’m looking for easy to use calculators to let me know best way to maximise interest income.  I have 2,400 that I can save as 200 per month for 12 months at 6% to regular saver or save as a lump sum in fixed interest acc at 5% for 12 months - but I don’t know which will provide the most interest at the end of the 12 months.

eskbanker

https://www.moneysavingexpert.com/savings/regular-savings-calculator/ is the MSE one - the third option that you haven't shown is to put the lump sum in an easy access account and drip-feed the regular saver from there, which should be more productive than either of your presented choices.

The Nationwide 8% regular saver, or even the First Direct 7% one, are also likely to give better outcomes if you qualify for those....

Brie

Paying a set amount over 12 months into a regular saver effectively gives you half the publicised APR as you have so little in it at the beginning.  So £200 a month will give you about £79 interest at the end of the year.  

Drop the whole £2400 in at 5% and you end up with about £120.

By following eskbanker's suggestion you'd make the £79 interest in the regular saver and about £67 in the 5% savings account which works out a bit better than just leaving the lot in the 5% account.  Maybe £145.

AmityNeon

You can do a quick calculation and comparison with any standard calculator if you don't have anything else easily to hand.

Whole balance (monthly amount × 12) at the same interest rate (5%) for a year:

£200 × 12 × 5% = £120

'Drip-feeding' the monthly amount from a lower-rate account (5%) to a regular saver (6%) every month for a year:

£200 × 6.5 × 6% = £78
£200 × 5.5 × 5% = £55
£78 + £55 = £133

6.5 + 5.5 = 12. Effectively, the whole balance (monthly amount × 12) is split between two different accounts/rates over the course of the year; once averaged, the regular saver has (monthly amount × 6.5) and the lower-rate account has (monthly amount × 5.5).

eskbanker

Brie said:

Paying a set amount over 12 months into a regular saver effectively gives you half the publicised APR as you have so little in it at the beginning.

I know you're caveatting that with 'effectively' but it always seems less confusing and more realistic to me to express it as (half final balance) * (full interest rate) rather than (full final balance) * (half interest rate), despite these giving the same result mathematically - if more people looked at it this way then there'd be significantly fewer threads in which posters indignantly (but inaccurately) moan that they're only receiving half the published rate!

By the way, the standardised measure for credited interest is AER; APR is used for debt interest....

ColdIron

eskbanker said:

Brie said:

Paying a set amount over 12 months into a regular saver effectively gives you half the publicised APR as you have so little in it at the beginning.

I know you're caveatting that with 'effectively' but it always seems less confusing and more realistic to me to express it as (half final balance) * (full interest rate) rather than (full final balance) * (half interest rate)

Indeed. A few months back we saw a thread that highlighted one consequence of using a manufactured rate and not the published rate. The poster reasoned that they only got the full rate for the first month, then 11/12s for the second and so on. They asked whether they should stop making payments after 6 months as the rate had 'halved' and they could get a better rate with their easy access account

BPauseMSE

eskbanker said:

https://www.moneysavingexpert.com/savings/regular-savings-calculator/ is the MSE one - the third option that you haven't shown is to put the lump sum in an easy access account and drip-feed the regular saver from there, which should be more productive than either of your presented choices.

The Nationwide 8% regular saver, or even the First Direct 7% one, are also likely to give better outcomes if you qualify for those....

Thank you.  This would be even more helpful if it had a third option of a fixed rate for a period, such as lump sum fixed for 12 months at X%.  Or details of formulas for spread sheet to calc alternatives.

eskbanker

BPauseMSE said:

eskbanker said:

https://www.moneysavingexpert.com/savings/regular-savings-calculator/ is the MSE one - the third option that you haven't shown is to put the lump sum in an easy access account and drip-feed the regular saver from there, which should be more productive than either of your presented choices.

The Nationwide 8% regular saver, or even the First Direct 7% one, are also likely to give better outcomes if you qualify for those....

Thank you.  This would be even more helpful if it had a third option of a fixed rate for a period, such as lump sum fixed for 12 months at X%.  Or details of formulas for spread sheet to calc alternatives.

It was designed to model the effect of feeding a regular saver from a lump sum - modelling the return on a lump sum in a single account for a year is obviously just balance x interest rate!