Regular savings vs easy access..?

B0bbyEwing

Specifically First Direct at 7%.

I get that you don't get 7% on everything all the time. Only the first amount gets it for the full year, so on & so forth so in a roundabout way the account works out at an overall percentage less than 7.

So I ran the MSE calculator to see what would be better - this fixed rate regular saver or an easy access account.

Put the numbers in, starting with £0, £300pm & 7% interest.

Then for the easy access as it wouldn't let me to a comparable start of £3,600 & nothing for the rest of the year I did a start of £3,588 & putting in £1/month for a year with an interest rate of 4.35%.

Which told me that the easy access lower interest account would leave me with more money at the end of the year than the 7% regular saver. 

Have I crunched the numbers correctly then because I assumed the 7% would've been a better bet?

* Granted the 7% is fixed and 4.35% isn't, so the 4.35% could drop to 2.35% or whatever else the day after I take it out.

Frequentlyhere

All you're working out here is that if you apply a lot more money to a lower rate it will generate more in £ than a smaller amount at a higher %.

What you're missing is that whilst you're saving £300 a month at 7%, you can also be storing £3300 for 1 month at the easy rate, then £3000 for 2 months and so on as you contribute to the monthly saver. Those two combined will see you exceed the easy rate interest if you did that alone.

So the optimal answer is do both - have the easy access and feed the higher rate saver when you can each month. Or find other regular savers as well maybe if you have the time and interest.

Martico

Feed the regular account from the easy access account and you get the best of both worlds

trickydicky14

B0bbyEwing said:

Specifically First Direct at 7%.

I get that you don't get 7% on everything all the time. Only the first amount gets it for the full year, so on & so forth so in a roundabout way the account works out at an overall percentage less than 7.

So I ran the MSE calculator to see what would be better - this fixed rate regular saver or an easy access account.

Put the numbers in, starting with £0, £300pm & 7% interest.

Then for the easy access as it wouldn't let me to a comparable start of £3,600 & nothing for the rest of the year I did a start of £3,588 & putting in £1/month for a year with an interest rate of 4.35%.

Which told me that the easy access lower interest account would leave me with more money at the end of the year than the 7% regular saver. 

Have I crunched the numbers correctly then because I assumed the 7% would've been a better bet?

* Granted the 7% is fixed and 4.35% isn't, so the 4.35% could drop to 2.35% or whatever else the day after I take it out.

The mse calc is easy to understand, if you drip feed £300 into FD from a savings account giving 4.3% you end up with £207 interest. If you just leave the £3600 in the 4.3% account you only end up with £154 interest. How do you make the easy access account come out better?

Don't forget, the money not yet in the RS is still earning interest in the easy access account.

clairec666

You've got your calculations right for the regular saver, but I don't get what you're doing with the easy access account. To make a direct comparison, put in £300 a month like you did with the regular saver and you'll see that 7% pays better than 4.35%, as expected. The reason your calculations were showing more interest for the easy access is because the majority of the money was in there for the full year.

Do you have £3600 to save right now? If so, put it all in the easy access, then withdraw £300 a month to put into the regular saver. Also known as drip-feeding. This way, all your money will be earning 7% by the end of the year, but in the meantime it's all earning at least 4.35% all year. Barring any interest rate drops, obviously.

kimwp

I think for your regular saver calculation, you are assuming that the remainder of the money that's not yet in the regular saver is earning nothing. 

I think there is a drip feeding calculator on the mse regular savers page. The comparison to make is:

Drip feeding from the 4.35% savings account into the regular savings account. (Use the mse calculator)
Vs
Leaving the whole amount in the 4.35% account (amount x 4.35%)

B0bbyEwing

Frequentlyhere said:

All you're working out here is that if you apply a lot more money to a lower rate it will generate more in £ than a smaller amount at a higher %.

What you're missing is that whilst you're saving £300 a month at 7%, you can also be storing £3300 for 1 month at the easy rate, then £3000 for 2 months and so on as you contribute to the monthly saver. Those two combined will see you exceed the easy rate interest if you did that alone.

So the optimal answer is do both - have the easy access and feed the higher rate saver when you can each month. Or find other regular savers as well maybe if you have the time and interest.

kimwp said:

I think for your regular saver calculation, you are assuming that the remainder of the money that's not yet in the regular saver is earning nothing. 

I think there is a drip feeding calculator on the mse regular savers page. The comparison to make is:

Drip feeding from the 4.35% savings account into the regular savings account. (Use the mse calculator)
Vs
Leaving the whole amount in the 4.35% account (amount x 4.35%)

I'm going to run with the excuse that I asked this early in the morning & hadn't yet woken up.

Thanks for pointing me in the right & now obvious direction.

This conversation never happened

Exodi

B0bbyEwing said:

I get that you don't get 7% on everything all the time. Only the first amount gets it for the full year, so on & so forth so in a roundabout way the account works out at an overall percentage less than 7.

Sorry, but this is a pet peeve of mine. You do get an annual rate of 7% all the time. All the money gets an annual rate of 7%, but obviously if some money isn't in there for an entire year, you won't get an entire years worth of interest on it.

If you're referring to your rate of return, instead of thinking "I earned £136.50 in interest on a closing balance of £3,600, therefore the annual rate was ~3.8%" it might be better to think of it like "I earned £136.50 in interest at an annual interest rate of 7%, therefore the average balance was £1950".

To save reinventing the wheel, I did a long post on this quite recently:

https://forums.moneysavingexpert.com/discussion/comment/81591462#Comment_81591462

B0bbyEwing said:

So I ran the MSE calculator to see what would be better - this fixed rate regular saver or an easy access account.

Put the numbers in, starting with £0, £300pm & 7% interest.

Then for the easy access as it wouldn't let me to a comparable start of £3,600 & nothing for the rest of the year I did a start of £3,588 & putting in £1/month for a year with an interest rate of 4.35%.

MSE specifically has a Regular Saver calculator (use the drip feed lump sum option to include your EA account).

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

According to MSE, you'd get £154 leaving it in your EA account, or £207 by drip feeding it into FD

(I always find their numbers slightly off, perhaps due to rounding or compounding assumptions, but it's close enough).

exel1966

B0bbyEwing said:

Specifically First Direct at 7%.

I get that you don't get 7% on everything all the time. Only the first amount gets it for the full year, so on & so forth so in a roundabout way the account works out at an overall percentage less than 7.

So I ran the MSE calculator to see what would be better - this fixed rate regular saver or an easy access account.

Put the numbers in, starting with £0, £300pm & 7% interest.

Then for the easy access as it wouldn't let me to a comparable start of £3,600 & nothing for the rest of the year I did a start of £3,588 & putting in £1/month for a year with an interest rate of 4.35%.

Which told me that the easy access lower interest account would leave me with more money at the end of the year than the 7% regular saver. 

Have I crunched the numbers correctly then because I assumed the 7% would've been a better bet?

* Granted the 7% is fixed and 4.35% isn't, so the 4.35% could drop to 2.35% or whatever else the day after I take it out.

Clearly you don't get it as you do get 7% on everything in the account all the the time. No ifs, no buts, you get exactly what it says you will get, 7%.

friolento

exel1966 said:

B0bbyEwing said:

Specifically First Direct at 7%.

I get that you don't get 7% on everything all the time. Only the first amount gets it for the full year, so on & so forth so in a roundabout way the account works out at an overall percentage less than 7.

So I ran the MSE calculator to see what would be better - this fixed rate regular saver or an easy access account.

Put the numbers in, starting with £0, £300pm & 7% interest.

Then for the easy access as it wouldn't let me to a comparable start of £3,600 & nothing for the rest of the year I did a start of £3,588 & putting in £1/month for a year with an interest rate of 4.35%.

Which told me that the easy access lower interest account would leave me with more money at the end of the year than the 7% regular saver. 

Have I crunched the numbers correctly then because I assumed the 7% would've been a better bet?

* Granted the 7% is fixed and 4.35% isn't, so the 4.35% could drop to 2.35% or whatever else the day after I take it out.

Clearly you don't get it as you do get 7% on everything in the account all the the time. No ifs, no buts, you get exactly what it says you will get, 7%.

That’s a tad unfair as the OP was eating their words at 08:44 this morning and was big enough to admit their mistake 😇

 https://forums.moneysavingexpert.com/discussion/comment/81623412/#Comment_81623412

kimwp

friolento said:

exel1966 said:

B0bbyEwing said:

Specifically First Direct at 7%.

I get that you don't get 7% on everything all the time. Only the first amount gets it for the full year, so on & so forth so in a roundabout way the account works out at an overall percentage less than 7.

So I ran the MSE calculator to see what would be better - this fixed rate regular saver or an easy access account.

Put the numbers in, starting with £0, £300pm & 7% interest.

Then for the easy access as it wouldn't let me to a comparable start of £3,600 & nothing for the rest of the year I did a start of £3,588 & putting in £1/month for a year with an interest rate of 4.35%.

Which told me that the easy access lower interest account would leave me with more money at the end of the year than the 7% regular saver. 

Have I crunched the numbers correctly then because I assumed the 7% would've been a better bet?

* Granted the 7% is fixed and 4.35% isn't, so the 4.35% could drop to 2.35% or whatever else the day after I take it out.

Clearly you don't get it as you do get 7% on everything in the account all the the time. No ifs, no buts, you get exactly what it says you will get, 7%.

That’s a tad unfair as the OP was eating their words at 08:44 this morning and was big enough to admit their mistake 😇

 https://forums.moneysavingexpert.com/discussion/comment/81623412/#Comment_81623412

Agree. I think a few later posters have got their proverbials in a twist and not read the next sentence of the original post that makes it clear that "everything" is referring to the entire sum that is started with and that the OP understood from the start the point that these posters are making.