Compound Interest on Reg Saver

surreysaver

How about opening it on the 3rd February? There's not many thirds of the month that fall on a weekend or bank holiday for the next year 

masonic

surreysaver said:

How about opening it on the 3rd February? There's not many thirds of the month that fall on a weekend or bank holiday for the next year 

You can't guarantee a specific date. It takes them up to 2 working days from your application to set up the RS. But if you got lucky, I make it £137.16. 

Whereas if it was opened today, you'd get £136.70 and benefit from 7 days at the higher rate and but still be down by about 30p in the first cycle. 

Or if it was opened on 3rd Jan, you'd get £136.93 and benefit from 31 days at the higher rate, worth about 59p, so would be better off overall.

AmityNeon

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.

All else being equal, there are still two differences:

1. A new RS can be opened sooner, so the first monthly deposit is always ahead.
2. Even if you choose not to open a new RS, you're still earning compound interest sooner.

If you deliberately allow the delayed RS funds to "catch up" at the end, then it's not really a realistic comparison.

surreysaver said:

How about opening it on the 3rd February? There's not many thirds of the month that fall on a weekend or bank holiday for the next year

£136.70 (now) vs £137.10 (3rd Feb).
After maturity, factor in seven days of £300 earning 2.25% in a new RS (7% minus the best easy access rate of 4.75%), plus £136.70 compounding at 4.75% for seven days, the total would be an extra 25p, so £136.95 vs £137.10.

Ironically, considering how close we are to the optimal month of February, it's a rare edge case where waiting is better from a pure penny return standpoint. Holding the smallest balances for the shortest duration (February) allows for the highest potential returns, and for calendar month accounts, 31st January is best.

lindabea

Masonic and AmityNeon  Thank you for taking the time to explain.  I can see now what you guys are saying.  I was looking at the saving strategy as an isolated 12 months saving.  That's why I was thinking about there is nothing to gain by starting earlier as I was considering a saving period as a 12 month chunk.  Whereas you are looking at it as a rolling/ongoing series of payments and this is where it makes the difference. 

Thank you again, I just haven't considered it that way.