To use regular savers or not

Zekko

MSE has a Regular Saver Calculator.

https://www.moneysavingexpert.com/savings/regular-savings-calculator/

Ch1ll1Phlakes

Zekko said:

MSE has a Regular Saver Calculator.

https://www.moneysavingexpert.com/savings/regular-savings-calculator/

Yes and it agrees with @Exodi's example (with rounding) - £3600 with 4% EA and 7% RS (£300/mth)

Ch1ll1Phlakes

sausage_time said:

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.

The "betweener" rate only works when calculating the rate in cases where the maximum amount in the regular saver is already held in the easy-access saver at the start. 

Don't want to complicate things but, for example, look at @Exodi 's post. £3600 is the maximum the regular saver can hold. The mean rate of 4% and 7% is 5.5% and on £3600 this gives £198 (close to £202.50 with some rounding for the approximation)

See the following posts for an explanation of the "getting half the advertised rate" misconception.

DrSyn

eskbanker said:

OP, while learning, would be well advised to ignore the old 'only getting half the advertised rate' trope that features so frequently in any discussions about regular savers!

Please explain to me why it should be ignored. What is wrong with it?

Ch1ll1Phlakes

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. 

DrSyn said:

eskbanker said:

OP, while learning, would be well advised to ignore the old 'only getting half the advertised rate' trope that features so frequently in any discussions about regular savers!

Please explain to me why it should be ignored. What is wrong with it?

In the example above, they say they earned 5% on £3,000 even though the account was earning 10% interest. That’s flawed thinking. The regular saver does pay 10% on whatever balance is in the account — but you only have £3,000 in it for the very last month.

In month 1, you earn 10% on £250; in month 2, it’s 10% on £500; and so on. You’re not “getting half the interest” — you’re getting the full rate on the money while it’s there. It’s just that your balance grows gradually, so the average amount earning interest over the year is much less than £3,000.

The misconception is that people see £3000 in the account at the end and say they should get 10% of £3000 which is £300 interest. But in reality they have approximately the average amount of the first and last balances in the account, i.e in the account above they would have £250 in month 1 and £3000 in month 12, and a mean average of £1625. The interest on this is £162.50 in a year ( note this is an approximation to give you an idea) which they see as just over half the interest.

eskbanker

DrSyn said:

eskbanker said:

OP, while learning, would be well advised to ignore the old 'only getting half the advertised rate' trope that features so frequently in any discussions about regular savers!

Please explain to me why it should be ignored. What is wrong with it?

Because, as detailed extensively above, it fails to recognise that (a) the closing balance in the regular saver hasn't been in the account for the full year and (b) the money should be earning interest elsewhere.

It may be technically correct to state that the interest earned from a 10% RS is equivalent to 5% of the closing balance but it's highly misleading to phrase it in that way and is almost invariably stated by those who feel that it's a rip-off or similar.

Given the way in which a RS is funded, with the closing balance usually being accumulated almost linearly over the year, and therefore the average being about half of the closing balance, it's much more realistic to present the interest earned as <half closing balance> times <full interest rate> rather than <full closing balance> times <half interest rate>, despite these both ultimately giving the same result mathematically.

boingy

The answer is that it's worth it if you can be bothered. Make sure you calculate how much extra interest you'll get compared to just having it in a decent savings account, because it may not be as much as you think. Most savings accounts don't support standing orders so each month you'll have to manually transfer the monthly amount from the feeder savings account into a current account then transfer it to the regular saver. 

Finally, ignore the 10% that is being bandied about in the thread. That one is gone. 7% can be had from a few places and 7.5% from a six month one. Best normal savings rate is about 4.75%.

ColdIron

DrSyn said:

eskbanker said:

OP, while learning, would be well advised to ignore the old 'only getting half the advertised rate' trope that features so frequently in any discussions about regular savers!

Please explain to me why it should be ignored. What is wrong with it?

It leads to foolish thinking and poor outcomes

If a 6.00% RS was really only 3.00% surely you should put your money into a 3.25% easy access account as it's a better rate? Or, as more than one poster has suggested and just as bad, you should close your RS after 6 months as you do could better than 3.00% elsewhere

Ch1ll1Phlakes

boingy said:

The answer is that it's worth it if you can be bothered. Make sure you calculate how much extra interest you'll get compared to just having it in a decent savings account, because it may not be as much as you think. Most savings accounts don't support standing orders so each month you'll have to manually transfer the monthly amount from the feeder savings account into a current account then transfer it to the regular saver. 

Finally, ignore the 10% that is being bandied about in the thread. That one is gone. 7% can be had from a few places and 7.5% from a six month one. Best normal savings rate is about 4.75%.

All my regular savers accepting standing orders from my current account. To work around the from-savings-accounts standing order issue I just transfer out the required amount to my current account before the standing orders are implemented.

The 10% was only in reference to someone's comment about their regular saver which just closed. The previous detailed examples use currently available rates.

UKX69

clairec666 said:

sausage_time 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. 

If a feeder account was earning 5%, the overall return would be around 7.5%.   Worth the effort in my opinion.

I'd make the effort too. Unlikely to find another 10% account any time soon, so the boost won't be quite as good. Probably 6%. And to get that average on the full £30k would need multiple regular savers.

A lot depends on whether the OP wants the hassle of managing multiple accounts. Unlikely to find an easy access account that pays 5% interest AND pays out standing orders, so human intervention will be needed to move the money around each month.

No harm in sticking it all in the best easy access account for now, decide whether you favour "best interest return" or "simplicity", and ask for help here if want to go the whole hog on playing the regular saver game.

Moving the money around each month and updating spreadsheets is part of the pleasure I find. A great hobby.