To use regular savers or not

Exodi

RunsFromRobots said:

My regular saver with Virgin matured recently which was 10% on £250 per month. This yielded just over 5% on £3,000 over 12 months.

If you have capital already I don't see them as a great return but are good for those looking to start saving from scratch. 

Not it didn't, this is just plain wrong. This is such a common misconception.

How is 10% not a great return? If you're wondering why you didn't receive an annual return of 10% on £3,000, it's because you didn't have £3,000 in the account for a year!

topyam said:

Confused and can't get my head around whether regular savers accounts are an option for me...

I have savings - over £30k
What i can't understand is whether i am better having this in an easy access account paying a decent rate, or moving some into regular savers accounts?
Surely a decent amount is better altogether earning interest?

Sorry - I have read up on regular savers accounts, but still think I'm missing something in my understanding as so many of you use them. 

Think of it like this - let's say you have £3,600 in an account earning 4% interest - so £144 in interest a year (3600 x 4%).

Now instead of thinking of it as one lump, let's think of it as 12x individual chunks of £300, so each chunk is earning £12 a year (300 x 4%). Let's now think of interest on a monthly basis and consider that you are earning £1 per month per chunk.

Let's say you decided to sign up for First Direct (who have a Regular Saver paying 7% on up to £300 p/m).

In the first month, you put in one of the chunks of £300. During the month, this chunk would earn £1.75 ((300 x 7%)/12) in interest.
In the second month, you put in another one of the chunks of £300. The first chunk again earns £1.75 and so does the second chunk.
Rinse and repeat.

You then end up with a situation like the below, earning you ~£136.50 in interest (and fortunately FD agree with my numbers: https://www.firstdirect.com/savings-and-investments/savings/regular-saver-account/ )



You were earning a rate of 7% on each chunk of money while it was First Direct. Don't get blinkered by only thinking of interest as an annual thing, it is actually calculated daily (but paid annually).

Now people like the above poster may say "But £136.50 is not 7% of £3600?" still missing the point that all the money wasn't with First Direct the whole year - perhaps concluding that 136.5/3600 is ~3.8%, so that is the 'real rate'. They might also forget that while the moneys not with First Direct, it would have been earning interest elsewhere.

So to jump back to our 4% account, let's add in the interest that we would be earning on that while we were moving chunks into the regular saver.



You can now see that you would have earned £202.50 in interest on your £3,600 across a year.

Clearly that's better than the £144 of interest (3600 x 4%) you would have earned without regular savers - though this was probably obvious when you consider you're earning £1.75 per month on each chunk instead of £1.

Unfortunately there is a significant amount of people that do not understand how this works (and an unfortunate amount of them post on MSE also).

But it really is as simple as bigger number = better (unless one account is taxable and one is not and then it becomes a bit more nuanced).

jimjames

Exodi said:

RunsFromRobots said:

My regular saver with Virgin matured recently which was 10% on £250 per month. This yielded just over 5% on £3,000 over 12 months.

If you have capital already I don't see them as a great return but are good for those looking to start saving from scratch. 

Unfortunately there is a significant amount of people that do not understand how this works (and an unfortunate amount of them post on MSE also).

But it really is as simple as bigger number = better (unless one account is taxable and one is not and then it becomes a bit more nuanced).

You're spot on, higher interest rate is better than lower interest rate, all other things being equal. Thanks for such a detailed explanation. It's no wonder people get confused when the likes of the post you quoted give misleading info which while maybe numerically correct is completely the wrong way of understanding it.

sausage_time

My simple way of viewing it is that the effective rate is about half way between the feeder account rate and the regular saver rate.

dingling68

I definitely think they are worth it, and for me it is like a hobby. 

Beware, they can be addictive once you start   

mon3ysav3r

dingling68 said:

I definitely think they are worth it, and for me it is like a hobby. 

Beware, they can be addictive once you start   

Yes, and I also get a bit of a feeling of "beating the system"!

Ch1ll1Phlakes

topyam said:

Confused and can't get my head around whether regular savers accounts are an option for me...

I have savings - over £30k
What i can't understand is whether i am better having this in an easy access account paying a decent rate, or moving some into regular savers accounts?
Surely a decent amount is better altogether earning interest?

Sorry - I have read up on regular savers accounts, but still think I'm missing something in my understanding as so many of you use them. 

Regular Savers, if they have a higher interest rate, will away earn you more than just leaving in a easy access account. Just for example consider the following looking at the first month of a regular saver cycle with £30k

Option 1: Leave all in Easy Access account
Take an interest rate of around 4% which is reasonable at the moment
In one year £30k would earn  £30000 x 0.04 = £1200  (Note this is over the PSA)
In one month then roughly  £1200/12 = £100

Option 2: Drip feed money from easy access into regular saver
Say we have a regular saver paying 7% interest and can deposit £250 per month
In month one we have £29750 in the EA account and £250 in the regular saver

The interest for one year if we made no change would be as follows;
The easy access account would earn  £29750 x 0.04 = £1190 per year ( or £99.17 per month)
The regular saver would earn  £250 x 0.07 = £17.5 per year ( or £1.46 per month)

Putting these two values total your total interest for the year would be £1207.50 (or £100.63 per month)
While this increase might not seem like very much remember the amount in the regular saver could (and should) be increasing every month, so increasing more money is earning 7% instead of the 4% in the easy access account.

Full year usage
For reference, based on a £250 deposit per month in the regular saver for 12 months here's the interest (this is an approximation but is ok for comparison using the Formula = (month one value + month twelve value)/2 * interest )

Easy access     (29750 + 27000)/2 x 0.04 = £1135
Regular Saver  (250 + 250x12)/2 x 0.07 = £113.75
__________________________________________
Total = 1135 + 113.75 = £1248.75

So an extra £48.75 for 12 payments of £250 moved to the regular saver.

Note: many people of this forum have multiple regular savers on the go so can move more money each month to higher interest rates therefore earning more interest.

Sorry this is so long but hopefully this helps you understand why the regular savers are beneficial. If you want any further examples let me know, I have the time (yes it's a bit sad I know ).

Ch1ll1Phlakes

Ch1ll1Phlakes said:

topyam said:

Confused and can't get my head around whether regular savers accounts are an option for me...

I have savings - over £30k
What i can't understand is whether i am better having this in an easy access account paying a decent rate, or moving some into regular savers accounts?
Surely a decent amount is better altogether earning interest?

Sorry - I have read up on regular savers accounts, but still think I'm missing something in my understanding as so many of you use them. 

Regular Savers, if they have a higher interest rate, will away earn you more than just leaving in a easy access account. Just for example consider the following looking at the first month of a regular saver cycle with £30k

........

Sorry this is so long but hopefully this helps you understand why the regular savers are beneficial. If you want any further examples let me know, I have the time (yes it's a bit sad I know ).

@Exodi has beaten me to the punch and used the same interest rates so use whichever you find is clearer.

clairec666

dingling68 said:

I definitely think they are worth it, and for me it is like a hobby. 

Beware, they can be addictive once you start   

I know  Within a week I've gone from saying "I've got more than enough bank accounts" to faffing around endlessly with the Monmouthshire app.

No need to scare the OP just yet... start it off nice and easy with something like Cooperative or Nationwide.

Bet they weren't expecting this many replies to their post! They don't know what they've let themselves in for...

saajan_12

The "half the RS interest rate" approximation only makes sense if you have the full amount sitting in a 0% account and are transferring bits in gradually. 
If you had the full amount then the more accurate calc is AVERAGE ( RS rate , Orig Account rate), which is the same as half if the original account rate is 0%. But if you started with the full money in a simple easy access account at say 4% that average gets a lot higher. 
If you didn't have the full amount upfront then whether you drip it into a regular saver or an easy access makes no difference, you don't get interest on money you don't have!

Bobblehat

Exodi said:

RunsFromRobots said:

My regular saver with Virgin matured recently which was 10% on £250 per month. This yielded just over 5% on £3,000 over 12 months.

If you have capital already I don't see them as a great return but are good for those looking to start saving from scratch. 

Not it didn't, this is just plain wrong. This is such a common misconception.

How is 10% not a great return? If you're wondering why you didn't receive an annual return of 10% on £3,000, it's because you didn't have £3,000 in the account for a year!

topyam said:

Confused and can't get my head around whether regular savers accounts are an option for me...

I have savings - over £30k
What i can't understand is whether i am better having this in an easy access account paying a decent rate, or moving some into regular savers accounts?
Surely a decent amount is better altogether earning interest?

Sorry - I have read up on regular savers accounts, but still think I'm missing something in my understanding as so many of you use them. 

Think of it like this - let's say you have £3,600 in an account earning 4% interest - so £144 in interest a year (3600 x 4%).

Now instead of thinking of it as one lump, let's think of it as 12x individual chunks of £300, so each chunk is earning £12 a year (300 x 4%). Let's now think of interest on a monthly basis and consider that you are earning £1 per month per chunk.

Let's say you decided to sign up for First Direct (who have a Regular Saver paying 7% on up to £300 p/m).

In the first month, you put in one of the chunks of £300. During the month, this chunk would earn £1.75 ((300 x 7%)/12) in interest.
In the second month, you put in another one of the chunks of £300. The first chunk again earns £1.75 and so does the second chunk.
Rinse and repeat.

You then end up with a situation like the below, earning you ~£136.50 in interest (and fortunately FD agree with my numbers: https://www.firstdirect.com/savings-and-investments/savings/regular-saver-account/ )



You were earning a rate of 7% on each chunk of money while it was First Direct. Don't get blinkered by only thinking of interest as an annual thing, it is actually calculated daily (but paid annually).

Now people like the above poster may say "But £136.50 is not 7% of £3600?" still missing the point that all the money wasn't with First Direct the whole year - perhaps concluding that 136.5/3600 is ~3.8%, so that is the 'real rate'. They might also forget that while the moneys not with First Direct, it would have been earning interest elsewhere.

So to jump back to our 4% account, let's add in the interest that we would be earning on that while we were moving chunks into the regular saver.



You can now see that you would have earned £202.50 in interest on your £3,600 across a year.

Clearly that's better than the £144 of interest (3600 x 4%) you would have earned without regular savers - though this was probably obvious when you consider you're earning £1.75 per month on each chunk instead of £1.

Unfortunately there is a significant amount of people that do not understand how this works (and an unfortunate amount of them post on MSE also).

But it really is as simple as bigger number = better (unless one account is taxable and one is not and then it becomes a bit more nuanced).

I like your use of tables