Regular savings account verses standard savings account

surreysaver

You start the year with £3,600 earning 4.5% and end the year with that £3,600 earning 7 5%, moving £300 across each month.
So, on average over the year you have £1,800 earning 4.5%, and £1,800 earning 7.5%. plus the 7.5% is fixed.
Therefore your £3,600 earning a combined 6% over the year.
Or you can just keep it in the variable rate account, earning 4.5%, which is likely to go down as well 

friolento

Cobbler_tone said:

Why I love this forum! 

Perhaps my bad and was looking at compounded interest. Must be pennies in it.
e.g. £6,500 at 4.5% vs £6,200 at 4.5% + £300 at 7.5%, then add £1,000 to £7,500 at 4.5% vs £6,900 at 4.5% + £600 at 7.5% (plus all relevant compounded interest). 

There isn’t just pennies in it, and it’s nothing really to do with compounding in most cases because compounding only comes into play after every 12 months, and  most RSs have a 12 month duration. It’s simply about higher AER in the RS.

Did you use the MSE calculator someone posted earlier?

refluxer

Cobbler_tone said:

Must be pennies in it.

You're actually not far off in some cases. If, for example, the Regular Saver isn't paying much more than the best easy access account and has a low monthly maximum (eg. £50), then the difference over a year can often only amount to a few pounds.

But, on the whole, if the difference is large (such as the 3% in the example you used) and the monthly amount is reasonable (£200-300 or more) then the gain is much more substantial.

The MSE calculator linked to above can be a useful and quick way of weighing up whether a RS is worth it.

Cobbler_tone

Thanks all.
£145 interest over 12 months on £300 per month on 7.5% (using the calculator)
Is it £58 difference (in interest) compared to £6,000 to £9,600 on 4.5% across 12 months, as alluded earlier?

If so I'd weigh up the admin of having one/multiple regular saving accounts.

refluxer

Cobbler_tone said:

Thanks all.
£145 interest over 12 months on £300 per month on 7.5% (using the calculator)
Is it £58 difference (in interest) compared to £6,000 to £9,600 on 4.5% across 12 months, as alluded earlier?

If so I'd weigh up the admin of having one/multiple regular saving accounts.

When using the calculator, you need to use the drip-feed option and only include the amount you're actually going to pay into the regular saver over the year (so £3600). If you do that with the drip-feeding EA account @ 4.5% and the RS @ 7.5%, you get the following data which shows you'll be roughly £61 better off by paying into the RS.

Drip-feeding the regular saver

After drip-feeding the cash for 12 months, you'd have earned...

£220 in interest
£145 from the regular saver + £75 from the normal savings account

Leaving it in normal savings

If you'd kept the cash in normal savings without drip-feeding it, you'd have earned...
£159 in interest

It's worth noting that if a RS doesn't have a maximum balance, allows you to pay in every calendar month (not account month) and you open one and fund it towards the end of the month and then again on the 1st of the following month, then the difference can actually be slightly more than the calculator (or even account Summary Box) will state, as you'll have two payments in for more-or-less the full 12 months, rather than one.

Bobblehat

Cobbler_tone said:

Thanks all.
£145 interest over 12 months on £300 per month on 7.5% (using the calculator)
Is it £58 difference (in interest) compared to £6,000 to £9,600 on 4.5% across 12 months, as alluded earlier?

If so I'd weigh up the admin of having one/multiple regular saving accounts.

At least you now have an accurate means of calculating whether an account is worth it to you or not   

Quite a few on here with multiple RS accounts will have a cut-off point for the interest rate ... e.g. nothing below 6%, others might go lower. It goes without saying that any new RS with a really good interest rate are snapped up quickly ( e.g. Virgin at 10% - NLA). Where it really starts to make a reasonable difference is when you have a few of the RS accounts and you are putting away (or recycling) a total of £1000 plus each month. I think I remember one member mentioning £7000+ each month! No doubt that is recycling at the extreme, where a couple of RS's mature every month and pays for the next monthly contributions to all the active RS's.

I find a dozen RS's easy enough to manage with standing orders doing the bulk of the work. 

jaypers

Regular Saving accounts cause so much confusion to so many people. See this subject so many times. 

allegro120

Bobblehat said:

Cobbler_tone said:

Thanks all.
£145 interest over 12 months on £300 per month on 7.5% (using the calculator)
Is it £58 difference (in interest) compared to £6,000 to £9,600 on 4.5% across 12 months, as alluded earlier?

If so I'd weigh up the admin of having one/multiple regular saving accounts.

At least you now have an accurate means of calculating whether an account is worth it to you or not   

Quite a few on here with multiple RS accounts will have a cut-off point for the interest rate ... e.g. nothing below 6%, others might go lower. It goes without saying that any new RS with a really good interest rate are snapped up quickly ( e.g. Virgin at 10% - NLA). Where it really starts to make a reasonable difference is when you have a few of the RS accounts and you are putting away (or recycling) a total of £1000 plus each month. I think I remember one member mentioning £7000+ each month! No doubt that is recycling at the extreme, where a couple of RS's mature every month and pays for the next monthly contributions to all the active RS's.

I find a dozen RS's easy enough to manage with standing orders doing the bulk of the work. 

My total deposit into regular savers this month was £9400, it does make a significant difference.  I don't see it as an extreme, rather a sensible method to maximise the interest
It might look like a lot of work, but when you are doing it for many years and have your admin system in place it doesn't feel like hard work. 

eskbanker

allegro120 said:

My total deposit into regular savers this month was £9400, it does make a significant difference.  I don't see it as an extreme, rather a sensible method to maximise the interest

Sounds like both to be honest!

Cobbler_tone

allegro120 said:

Bobblehat said:

Cobbler_tone said:

Thanks all.
£145 interest over 12 months on £300 per month on 7.5% (using the calculator)
Is it £58 difference (in interest) compared to £6,000 to £9,600 on 4.5% across 12 months, as alluded earlier?

If so I'd weigh up the admin of having one/multiple regular saving accounts.

At least you now have an accurate means of calculating whether an account is worth it to you or not   

Quite a few on here with multiple RS accounts will have a cut-off point for the interest rate ... e.g. nothing below 6%, others might go lower. It goes without saying that any new RS with a really good interest rate are snapped up quickly ( e.g. Virgin at 10% - NLA). Where it really starts to make a reasonable difference is when you have a few of the RS accounts and you are putting away (or recycling) a total of £1000 plus each month. I think I remember one member mentioning £7000+ each month! No doubt that is recycling at the extreme, where a couple of RS's mature every month and pays for the next monthly contributions to all the active RS's.

I find a dozen RS's easy enough to manage with standing orders doing the bulk of the work. 

My total deposit into regular savers this month was £9400, it does make a significant difference.  I don't see it as an extreme, rather a sensible method to maximise the interest
It might look like a lot of work, but when you are doing it for many years and have your admin system in place it doesn't feel like hard work. 

I'm genuinely made up and love a day that I learn something to challenge a mis-understanding. I'm decent on pensions, industrial relations and many other areas, clearly not on savings percentages. Slightly embarrassed as I am strong on maths...usually!

Using the ML calculator the difference between 4.5%-7.5% on a £6k head start (at £300 diverted per month) is £60 a year in favour of the 7.5%. A bit more in the pocket, a bit more for the HMRC!
I guess you may not be averaging 7.5% but at your levels that could be worth £1,800+ a year.

I'll do the Zopa 7.5% as no restrictions (other than paying in) and I can open with a couple of clicks.