Regular Saver Accounts

ColdIron

We haven't had one of these bun fights threads for a while now

Not the first from this poster either, it was carefully explained some years ago

https://forums.moneysavingexpert.com/discussion/5654594/regular-saver-interest/p1

Kim_13

kaMelo said:

carrotmuseum said:

I often see recommendations for high interest regualr savr accounts. Please note the interest is calculated based on the money in your account at the time of calculation, not the final lump sum at the end of the term. . So if the claimed interest rate is, say 6% the first payment only accrues 1/12th of 6%  the second balane get 2/12ths and so on.

So the ACTUAL interst paid out at the year end is significantly less than 6%

e.g. A regular saver account with a 7% AER might sound appealing, but if interest is calculated monthly and you save £100 a month, your average savings balance over the year will be around £600. The actual interest earned will be about half of the advertised rate, potentially around 3.5%. 

Just like every savings account, as far as I'm aware there are no savings accounts that pay interest on money you don’t have in the account.

Help To Save would be the only exception. Given that that account has likely been many people’s first experience of saving, I wonder if it is in part responsible for this type of misunderstanding.

masonic

ColdIron said:

We haven't had one of these bun fights threads for a while now

Not the first from this poster either, it was carefully explained some years ago

https://forums.moneysavingexpert.com/discussion/5654594/regular-saver-interest/p1

Shows the age of the OP's earlier thread. Has had to up the rates used this time around.

I don't think anyone has mentioned that providers tend to give an illustration of the amount of interest that would be earned based on a typical pattern of usage.

friolento

carrotmuseum said:

I often see recommendations for high interest regualr savr accounts. Please note the interest is calculated based on the money in your account at the time of calculation, not the final lump sum at the end of the term. . So if the claimed interest rate is, say 6% the first payment only accrues 1/12th of 6%  the second balane get 2/12ths and so on.

......

The actual interest earned will be about half of the advertised rate, potentially around 3.5%. 

Interest is calculated daily, not monthly

The interest earned in Regular Savers is exaclty as advertised, not about half of it.

ColdIron

friolento said:

The interest earned in Regular Savers is exaclty as advertised, not about half of it.

Quite. This sort of thinking can lead to very poor outcomes

A while back we had a poster who argued that as a 6% RS was really only 3%, people should close their account and move their balance into a 5% one at 6 months, as at that point it was only paying 4.5%

It might not have been those exact numbers but I cba to look it up. I'm not sure we ever really convinced him/her

Kim_13

Then there is the fact that if providers were not paying the rate advertised, they would soon find themselves in trouble with the regulator. 

clairec666

The MSE page explains it perfectly. Regular savers are not a con and they're not deceiving anyone on their interest rates. If you've got £200 to put into an account right now, the best rate you'll get is in a regular saver.

masonic

Yes, just imagine someone with £250 per month to save pulling the £1500 they've built up in a Co-op 7% regular saver to put it into a Cahoot Simple Saver @ 4.55% instead because that's more than "about half" of the regular saver advertised rate. Or even just switching new contributions to the latter thinking they'll earn more interest now it will only be in the regular saver for 6 months or less.

Exodi

I get what you're trying to say, but it's still unhelpful as it implies the 6% rate is incorrect or misleading.

"So the ACTUAL interst paid out at the year end is significantly less than 6%". No it's not, interest is bring calculated daily based on an annual rate of 6%, no less.

The problem is, there are people who think you can calculate the interest payable by multiplying the final balance by the annual interest rate. But if that were the case, what's to stop me depositing all my money into an account the day before it matures to get a full years worth of interest in one day? Hell what if I open a new account every single day for a year, then over a year move the same lump sum across all of the different accounts just as they mature to get 365 years worth of interest in one year?

Interest is generally calculated daily and it's logical to expect that you will get interest based on how long you held money in an account. A better way to think about it would be thinking that you are getting 6%/365 on your money every day. AER's are used to help compare accounts, without the complexity of compounding calculations on gross rates.

People also regularly forget that while they are angry that they didn't get a full years worth of interest on the entire amount, they presumably would have been earning money on the leftover that wasn't in the regular saver.

As it gets suggested that Regular Savers are misleading because people often don't understand how interest works, I would suggest it's a financial education issue rather than an advertising issue. I have seen (and regrettably know) many people who think that when you go into a new tax bracket, you are charged tax at this new rate on your entire income. One of my friends told me he refused a pay rise for this reason and unfortunately from being on this forum for a decent chunk of time, I know he's not the first to think this.

E.g. they think if you earn £12,569, no tax is payable, whereas if you earn £12,570, 20% tax is payable on everything, e.g. £2,514 in tax.

But similar to Regular Savers, I don't think the tax system should be changed because there are people that don't understand it.

The problem is a significant lack of financial education. I'd say the average person on the street probably could not calculate interest on an account, or know the tax thresholds - yet money and tax rules our lives.

friolento

Exodi said:
E.g. ithey think f you earn £12,569, no tax is payable, whereas if you earn £12,570, 20% tax is payable on everything, e.g. £2,514 in tax.

This kind of misunderstanding, and worse, is widely found in pension discussions on Facebook. There are always some who go off on an extended angry rant about their annual triple-lock state pension increase which apparently "gets wiped out by the tax I need to pay on it". No amount of explaining gets them see sense.