Compound Interest on Reg Saver

AmityNeon

fergie_ said:

In some ways the question now is:

Is there an optimum day of the week or date in a particular month that it is most advantageous to open a RS? (not with standing some people may wish to receive interest before or after the 6th of April).

Unlike calendar month accounts, the overall difference between all scenarios for this account is negligible, so you're likely better off earning 7% sooner rather than later. Every day you delay opening the account offsets any 'saving' gained from reducing the number of weekend/holiday days.

surreysaver

AmityNeon said:

fergie_ said:

In some ways the question now is:

Is there an optimum day of the week or date in a particular month that it is most advantageous to open a RS? (not with standing some people may wish to receive interest before or after the 6th of April).

Unlike calendar month accounts, the overall difference between all scenarios for this account is negligible, so you're likely better off earning 7% sooner rather than later. Every day you delay opening the account offsets any 'saving' gained from reducing the number of weekend/holiday days.

And each day you delay opening the account risks the account being withdrawn or the interest rate being reduced for new openings (as happened with me with HSBC's 7% Regular Saver last year!)

tr7phil

There will be some compounding on the Virgin regular saver as the interest is credited in December, March, June and September as well as at the end of the term.

lindabea

AmityNeon said:

fergie_ said:

In some ways the question now is:

Is there an optimum day of the week or date in a particular month that it is most advantageous to open a RS? (not with standing some people may wish to receive interest before or after the 6th of April).

Unlike calendar month accounts, the overall difference between all scenarios for this account is negligible, so you're likely better off earning 7% sooner rather than later. Every day you delay opening the account offsets any 'saving' gained from reducing the number of weekend/holiday days.

AmityNeon - I don't quite follow your logic here.  We already established that the account pays interest for a max of 365 days. However, this is reduced by the days when the standing order falls on a weekend or bank holiday.  So on that basis, it shouldn't matter if you delay opening an account, as whatever days you lose before opening, you would make up for them at the end.   . 

Please elaborate if you think I missed something in your statement.

surreysaver

tr7phil said:

There will be some compounding on the Virgin regular saver as the interest is credited in December, March, June and September as well as at the end of the term.

Although the post title doesn't say it, this thread is about the First Direct Regular Saver, which only pays once a year. 
The Virgin Regular Saver was advertised as gross 10% / AER 10.38% which implies it pays more than once a year 

masonic

lindabea said:

AmityNeon said:

fergie_ said:

In some ways the question now is:

Is there an optimum day of the week or date in a particular month that it is most advantageous to open a RS? (not with standing some people may wish to receive interest before or after the 6th of April).

Unlike calendar month accounts, the overall difference between all scenarios for this account is negligible, so you're likely better off earning 7% sooner rather than later. Every day you delay opening the account offsets any 'saving' gained from reducing the number of weekend/holiday days.

AmityNeon - I don't quite follow your logic here.  We already established that the account pays interest for a max of 365 days. However, this is reduced by the days when the standing order falls on a weekend or bank holiday.  So on that basis, it shouldn't matter if you delay opening an account, as whatever days you lose before opening, you would make up for them at the end.   . 

Please elaborate if you think I missed something in your statement.

The account term is 365 days and the term begins on the date the first deposit is collected, so interest will always be paid for 365 days. What differs is the balance on which it is paid on each day of the year.

If you delay opening, then for each day you earn less than 7% on the money you have ready for this regular saver, you are losing out on interest, perhaps at 2-3% on £3,600 (since each monthly payment will be delayed). You are also delaying the time when you'll be able to start all subsequent regular savers following on from maturity of this one, so the effect is cumulative assuming the account remains as competitive vs easy access rates.

EarthBoy

lindabea said:

 We already established that the account pays interest for a max of 365 days. However, this is reduced by the days when the standing order falls on a weekend or bank holiday.  So on that basis, it shouldn't matter if you delay opening an account, as whatever days you lose before opening, you would make up for them at the end.   . 

Please elaborate if you think I missed something in your statement.

As already explained, if you delay opening the account you might find that the account is no longer available, or that they've reduced the interest rate.  

Of course the opposite could happen and you find that they've increased the rate a week after you opened your account, as happened to me once.  

lindabea

EarthBoy said:

lindabea said:

 We already established that the account pays interest for a max of 365 days. However, this is reduced by the days when the standing order falls on a weekend or bank holiday.  So on that basis, it shouldn't matter if you delay opening an account, as whatever days you lose before opening, you would make up for them at the end.   . 

Please elaborate if you think I missed something in your statement.

As already explained, if you delay opening the account you might find that the account is no longer available, or that they've reduced the interest rate.  

Of course the opposite could happen and you find that they've increased the rate a week after you opened your account, as happened to me once.  

Earthboy Thank you for your reply, I accept your reasoning but this is a risk I was ignoring as it is not directly related to optimising the amount of interest you could receive.  

lindabea

masonic said:

lindabea said:

AmityNeon said:

fergie_ said:

In some ways the question now is:

Is there an optimum day of the week or date in a particular month that it is most advantageous to open a RS? (not with standing some people may wish to receive interest before or after the 6th of April).

Unlike calendar month accounts, the overall difference between all scenarios for this account is negligible, so you're likely better off earning 7% sooner rather than later. Every day you delay opening the account offsets any 'saving' gained from reducing the number of weekend/holiday days.

AmityNeon - I don't quite follow your logic here.  We already established that the account pays interest for a max of 365 days. However, this is reduced by the days when the standing order falls on a weekend or bank holiday.  So on that basis, it shouldn't matter if you delay opening an account, as whatever days you lose before opening, you would make up for them at the end.   . 

Please elaborate if you think I missed something in your statement.

The account term is 365 days and the term begins on the date the first deposit is collected, so interest will always be paid for 365 days. What differs is the balance on which it is paid on each day of the year.

If you delay opening, then for each day you earn less than 7% on the money you have ready for this regular saver, you are losing out on interest, perhaps at 2-3% on £3,600 (since each monthly payment will be delayed). You are also delaying the time when you'll be able to start all subsequent regular savers following on from maturity of this one, so the effect is cumulative assuming the account remains as competitive vs easy access rates.

Masonic Thank you again for your reply.  However, I don't follow your reasoning that there is anything to gain by saying 'it is better to start earlier.  You are not able to invest the full 3600 at the start so you are not in fact losing 2-3% on 3600.  If you have one of these FD reg saver just maturing, you invest the 3600 at say 4%, (not able to invest this at 7%) then you start a new one with 300 paying 7%.  But it doesn't really matter when you start.  Assuming the risk highlighted by Earthboy is irrelevant and the account terms stay the same, it doesn't matter when you start. If you put 300 in Jan, you will get 136.50 in Dec (Or something close at FDs discretion) And if you delay and start in March, you will still get the same amount the following March. You lost nothing 

Am I still missing something or are you on my way of thinking 


 

masonic

lindabea said:

masonic said:

lindabea said:

AmityNeon said:

fergie_ said:

In some ways the question now is:

Is there an optimum day of the week or date in a particular month that it is most advantageous to open a RS? (not with standing some people may wish to receive interest before or after the 6th of April).

Unlike calendar month accounts, the overall difference between all scenarios for this account is negligible, so you're likely better off earning 7% sooner rather than later. Every day you delay opening the account offsets any 'saving' gained from reducing the number of weekend/holiday days.

AmityNeon - I don't quite follow your logic here.  We already established that the account pays interest for a max of 365 days. However, this is reduced by the days when the standing order falls on a weekend or bank holiday.  So on that basis, it shouldn't matter if you delay opening an account, as whatever days you lose before opening, you would make up for them at the end.   . 

Please elaborate if you think I missed something in your statement.

The account term is 365 days and the term begins on the date the first deposit is collected, so interest will always be paid for 365 days. What differs is the balance on which it is paid on each day of the year.

If you delay opening, then for each day you earn less than 7% on the money you have ready for this regular saver, you are losing out on interest, perhaps at 2-3% on £3,600 (since each monthly payment will be delayed). You are also delaying the time when you'll be able to start all subsequent regular savers following on from maturity of this one, so the effect is cumulative assuming the account remains as competitive vs easy access rates.

Masonic Thank you again for your reply.  However, I don't follow your reasoning that there is anything to gain by saying 'it is better to start earlier.  You are not able to invest the full 3600 at the start so you are not in fact losing 2-3% on 3600.  If you have one of these FD reg saver just maturing, you invest the 3600 at say 4%, (not able to invest this at 7%) then you start a new one with 300 paying 7%.  But it doesn't really matter when you start.  Assuming the risk highlighted by Earthboy is irrelevant and the account terms stay the same, it doesn't matter when you start. If you put 300 in Jan, you will get 136.50 in Dec (Or something close at FDs discretion) And if you delay and start in March, you will still get the same amount the following March. You lost nothing 

Am I still missing something or are you on my way of thinking

Yes, I think you are still missing something.

Let's suppose you decide you are in the position to be able to start funding the FD RS on 1st January from your Chip Instant Access 4.7% account, and let us assume that there are no rate changes for the next couple of years.

However, you learned from AmityNeon that the best month to open the RS is February due to the quirks of the account, so you decide to delay.

That means, instead of paying in your first deposit of £300 on 2nd January (assuming FD are quick to process your request), you actually have it paid in on Mon 3rd Feb. That's 32 days that this £300 was earning 4.7% instead of 7%, which is 60p interest missed.

Then, your second £300 payment is delayed until Mon 3rd March instead of Mon 3rd Feb when it could have been made if you didn't delay. That's a 28 day delay on the second payment, which is another 53p interest missed.

Then, your third £300 payment is delayed until Wed 2nd April when it could have been made on Mon 3rd March, a delay of 30 days, costing you 56p missed interest on that £300 instalment.

...and so on...

Resulting in each of the 12 x £300 instalments being delayed by about a month, costing you around £6.81 in total.

Much of this will come back in the 13th month, where you renew the RS in one case and are in the final month in the other, so there £3,300 is earning the lower rate (and have a new RS with £300). This amounts to being about £6.24 worse off in the 13th month through not delaying. However, £6.81(lost in months 1-12) minus £6.24 (gained in month 13) = 57p worse off over 13 months overall. And, you'll once again have a £300 lower balance over the course of the next 11 months as the cycle repeats.