Interest not compounding- Santander Edge Saver 7%

Exodi

nic_c said:

Exodi said:

fromscratch said:

Thank you so much for taking the time to answer me!

But what? Lol, I thought it paid interest on the interest, is that not how it is supposed to work? For example in my CHIP account I can put in the maximum and then I will get paid interest on the balance (which includes interest from the month before). Wild that it differs between banks when they are quoting AER etc

It would pay interest on the interest, if the balance remained <= £4k. The rules are quite clear.

This also isn't a special exception unique to Santander, it's how you'd expect most financial products to work.

Once interest is paid, it becomes part of the balance and should be treated as such.

Santander Edge (which pays 6.78% gross) would return about £22.60 on average per month with a full £4k balance (and the reason the figures vary are because each month has a different number of days in them).

However, I would be minded to agree that seeing the AER may be confusing to customers who deposit the full £4k, where no compounding can occur (so the gross rate would apply to them). I'm sure this is a regulatory thing as opposed to banks trying to mislead people and can be solved by better financial education.

Some leave less than the full amount in because they don't want the "hassle" of moving interest out. The OP could reduce their balance to £3738 and then the interest will compound. 

Absolutely.

fromscratch

Thanks guys, I haven't had a saver where I paid in the whole balance for the year before, just regular monthly savers so that's where the confusion came from.

AmityNeon said:

What Chip maximum? The Edge Saver specifically does not pay interest on any amount above £4,000 regardless of where the funds originate. AER figures are purely for comparative purposes and have no bearing on actual interest calculations.

The whole ISA allowance, you still get compounding interest in Chip if you use up the 20k allowance immediately 

fromscratch

Exodi said:

Santander Edge (which pays 6.78% gross) would return about £22.60 on average per month with a full £4k balance (and the reason the figures vary are because each month has a different number of days in them).

However, I would be minded to agree that seeing the AER may be confusing to customers who deposit the full £4k, where no compounding can occur (so the gross rate would apply to them). I'm sure this is a regulatory thing as opposed to banks trying to mislead people and can be solved by better financial education.

Some leave less than the full amount in because they don't want the "hassle" of moving interest out. The OP could reduce their balance to £3738 and then the interest will compound. 

Absolutely.

Is there any financial benefit of leaving only £3738 to compound at 7% AER instead of withdrawing it each month and putting it in an ISA with a 4.84% rate?

Yes sorry Exodi, everything I've learned about finances I've done alone in the last 6 months since my mother died so I had more time to look into things instead of just being her carer around also being a full time doctor.

saajan_12

fromscratch said:

Thanks guys, I haven't had a saver where I paid in the whole balance for the year before, just regular monthly savers so that's where the confusion came from.

AmityNeon said:

What Chip maximum? The Edge Saver specifically does not pay interest on any amount above £4,000 regardless of where the funds originate. AER figures are purely for comparative purposes and have no bearing on actual interest calculations.

The whole ISA allowance, you still get compounding interest in Chip if you use up the 20k allowance immediately 

That's not a Chip limit for the account. That's the government limit for how much new money you can deposit. Any money in the account beyond the 20k still earns, whether its interest or previous year's ISA contributions. 

In this case, Santander has a limit for how much money they will pay interest on, so it doesn't matter why the balance exceeds 4k, whether its deposited in a previous year or interest earned.. you won't get interest on more than the first £4k.

winkowinko

Personally I take great pleasure in withdrawing monthly interest on the 1st of the month, and moving it somewhere better.

fromscratch

The whole ISA allowance, you still get compounding interest in Chip if you use up the 20k allowance immediately 

That's not a Chip limit for the account. That's the government limit for how much new money you can deposit. Any money in the account beyond the 20k still earns, whether its interest or previous year's ISA contributions. 

In this case, Santander has a limit for how much money they will pay interest on, so it doesn't matter why the balance exceeds 4k, whether its deposited in a previous year or interest earned.. you won't get interest on more than the first £4k.

Yes I understand it is not a chip limit, it is the annual ISA allowance, but it is the yearly limit regardless of how it is phrased- and so that's why I didn't understand that some accounts would act differently. I had thought that the interest would still compound but if I deposited more than £4k, the interest on that amount would be at 0%. Now I know! Hopefully after reading this, so will other people so thanks for everyone's help!

where_are_we

fromscratch said:

Exodi said:

Santander Edge (which pays 6.78% gross) would return about £22.60 on average per month with a full £4k balance (and the reason the figures vary are because each month has a different number of days in them).

However, I would be minded to agree that seeing the AER may be confusing to customers who deposit the full £4k, where no compounding can occur (so the gross rate would apply to them). I'm sure this is a regulatory thing as opposed to banks trying to mislead people and can be solved by better financial education.

Some leave less than the full amount in because they don't want the "hassle" of moving interest out. The OP could reduce their balance to £3738 and then the interest will compound. 

Absolutely.

Is there any financial benefit of leaving only £3738 to compound at 7% AER instead of withdrawing it each month and putting it in an ISA with a 4.84% rate?

Yes sorry Exodi, everything I've learned about finances I've done alone in the last 6 months since my mother died so I had more time to look into things instead of just being her carer around also being a full time doctor.

You get maximum financial benefit by leaving a maximum balance of £4000 continuously in your Santander Edge Saver (SES). You can set up an alert for when your balance exceeds £4000. Then on that day move the monthly interest payment to your highest interest alternative account. Another way is to diarise the date the interest payment is made. It will be at one month intervals on the same day of the month. If you have £4000 to save, leaving only £3738 in the account is a very lazy way to make sure you do not exceed the £4000 interest paying limit and not very MSE.

As "winkowinko" suggests, gaining around £22 each month isn`t exactly a hassle - more a pleasure. So my OH and I get a "lift" 4 times a month (we have 4 SES).

Exodi

fromscratch said:

Exodi said:

Santander Edge (which pays 6.78% gross) would return about £22.60 on average per month with a full £4k balance (and the reason the figures vary are because each month has a different number of days in them).

However, I would be minded to agree that seeing the AER may be confusing to customers who deposit the full £4k, where no compounding can occur (so the gross rate would apply to them). I'm sure this is a regulatory thing as opposed to banks trying to mislead people and can be solved by better financial education.

Some leave less than the full amount in because they don't want the "hassle" of moving interest out. The OP could reduce their balance to £3738 and then the interest will compound. 

Absolutely.

Is there any financial benefit of leaving only £3738 to compound at 7% AER instead of withdrawing it each month and putting it in an ISA with a 4.84% rate?

Yes sorry Exodi, everything I've learned about finances I've done alone in the last 6 months since my mother died so I had more time to look into things instead of just being her carer around also being a full time doctor.

From a strictly financial perspective if you had £4k, it's better to earn 7% interest on £4000, than 7% interest on £3738 and 4.84% interest on £262. Of course it requires moving the interest every month.

Some may decide form an admin perspective they don't want the hassle of moving the interest out the account each month. Each to their own, but I'd suspect the majority of people on MSE wouldn't see it as any real inconvenience.