Being nosey... How many Regular Saver accounts do you have?

luci

s71hj said:

luci said:

Can someone explain the attraction of RS’s? From my understanding, a 6.5% RS actually yields around 3.25% over the year. I’m clearly missing something obvious here, especially when I read that someone was funding theirs from an ISA account.

I practically lived on the MSE forums for years and kept myself well informed. Unfortunately, ill health has kept me away from the forums for the past few years, but I’m trying to get back into it.

Thanks.

You earn 6.50% for all the money that is with an institution for the whole time it is with them. So you will eg earn one twelfth of 6.5% on £250 if it is only in the account for a month. No institution will pay interest on money that isn't actually with them 

I understand that, that's why I used the average of 3.25%

luci

Kim_13 said:

They still pay the highest rates obtainable rates on the cash for the period that it is with them. Sure, a 6.5% Easy Access would return more over the year than a 6.5% Regular Saver, but there are none of the former available. Easy Access rates tend to be cut more quickly than Regular Savers, and require all of the money to be available upfront. £1,800 placed into a 3.25% Easy Access now would return roughly £58.50 in a year, while the 6.5% Regular Saver returns the same with the average balance over the year being only £900. 

Regular Savers with maturities spread over the year are therefore the best way to make sure that an Emergency Fund is available, without losing out to inflation since RS rates are more likely to beat it.

Thanks for that. I didn't think about the average balance being lower. I was just thinking about the full amount being deposited at the outset.

Eco_Miser

luci said:

s71hj said:

luci said:

Can someone explain the attraction of RS’s? From my understanding, a 6.5% RS actually yields around 3.25% over the year. I’m clearly missing something obvious here, especially when I read that someone was funding theirs from an ISA account.

I practically lived on the MSE forums for years and kept myself well informed. Unfortunately, ill health has kept me away from the forums for the past few years, but I’m trying to get back into it.

Thanks.

You earn 6.50% for all the money that is with an institution for the whole time it is with them. So you will eg earn one twelfth of 6.5% on £250 if it is only in the account for a month. No institution will pay interest on money that isn't actually with them 

I understand that, that's why I used the average of 3.25%

You're still not getting it, but please continue believing a regular saver gets only half the headline rate. The more people don't take up the best saving rates around, the more there is for the people who understand.

luci

Bobblehat said:

luci said:

Can someone explain the attraction of RS’s? From my understanding, a 6.5% RS actually yields around 3.25% over the year. I’m clearly missing something obvious here, especially when I read that someone was funding theirs from an ISA account.

I practically lived on the MSE forums for years and kept myself well informed. Unfortunately, ill health has kept me away from the forums for the past few years, but I’m trying to get back into it.

Thanks.

One of the best ways to explain it (pinched this from another forum member) is to think of your money sat in a typical 4% easy access account (ISA or non-ISA). In the next month it would earn a month's worth of interest at 4%. Instead, if you were to move some of that money e.g. £300 to a RS paying 6.5%, in the same month it would earn a months worth at 6.5% instead of 4%. Do this the next month and the second £300 would earn interest at 6.5% instead of 4%, and as a bonus, your 1st £300 you paid into the RS the month before is still earning interest at 6.5% too instead of 4%. Repeat for as long as the RS lets you. 

The net effect is that an RS with a higher interest rate will beat an easy access with a lower interest rate. The actual gain is roughly (very!) 1/2 the difference between the two rates. So 0.5 x (6.5% - 4%) = 1.25% ... gain over leaving  your money in the easy access. This works for as many months (or typically 1 year) as the RS lets you add money.

This page is a calculator that you can plug some of your own figures in to see what you would gain with different rates and monthly contributions. Use the drip feed option if needed.

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

Many thanks for the explanation and the link to the RS calculator which I had forgotten about. That seems to have answered my question.

luci

DRS1 said:

luci said:

Can someone explain the attraction of RS’s? From my understanding, a 6.5% RS actually yields around 3.25% over the year. I’m clearly missing something obvious here, especially when I read that someone was funding theirs from an ISA account.

I practically lived on the MSE forums for years and kept myself well informed. Unfortunately, ill health has kept me away from the forums for the past few years, but I’m trying to get back into it.

Thanks.

Who can explain why people get addicted to anything.  Clearly RSs can become addictive.  Sure signs you are an addict include opening accounts which

mature in 6 months time or

only allow you to save £50 per month or

require you to open a current account that you otherwise did not need or want.

I seem to have got myself on the list by admitting to having a very old RS paying 2.45% (I thought that would shock the RS regulars who wouldn't look at anything paying less than 6.5%).

I actually have another paying 5% which auto renews so survives only because I have done nothing about it.

But the worrying thing is that I have now opened a new RS at Manchester BSoc.

So in the spirit of Halloween you will see me Zombie walking up the table.

Monthly amount is £1200.

I asked what the attraction of RS was, not what the addiction was!     Maybe your addiction has fuddled your brain!  

(Posted in jest and not meant to offend.)

luci

Eco_Miser said:

luci said:

s71hj said:

luci said:

Can someone explain the attraction of RS’s? From my understanding, a 6.5% RS actually yields around 3.25% over the year. I’m clearly missing something obvious here, especially when I read that someone was funding theirs from an ISA account.

I practically lived on the MSE forums for years and kept myself well informed. Unfortunately, ill health has kept me away from the forums for the past few years, but I’m trying to get back into it.

Thanks.

You earn 6.50% for all the money that is with an institution for the whole time it is with them. So you will eg earn one twelfth of 6.5% on £250 if it is only in the account for a month. No institution will pay interest on money that isn't actually with them 

I understand that, that's why I used the average of 3.25%

You're still not getting it, but please continue believing a regular saver gets only half the headline rate. The more people don't take up the best saving rates around, the more there is for the people who understand.

I am getting it (slowly), but I haven't explained myself very well. It was my cackhanded way of saying that I understood you only get interest on the amount that is in the account at any one time and not the whole 12 monthly deposits for the whole year. (I've probably still not explained myself properly).

Bobblehat kindly posted a clear explanation which has been very helpful.

nigelholl2

luci said:

I am getting it (slowly), but I haven't explained myself very well. It was my cackhanded way of saying that I understood you only get interest on the amount that is in the account at any one time and not for the whole year.

Bobblehat kindly posted a clear explanation which has been very helpful.

I too struggled to get the attraction, but when I started looking at it again this year the lightbulb suddenly came on.
Critics do not take into account the interest that you are making on the feeder account.
When I started my journey down this rabbit hole, I modelled a feeder account & associated RS's
On my current collection, annually
1. if all the monies  was sat in an IA acc, would generate £1319
2. my RS's will generate £1217, in addition the IA acc gives £784 while the money is waiting to be transferred, so total of £2002

A £52% increase or £683 running the same money through the set of RS's
Hopefully that may assist

luci

nigelholl2 said:

luci said:

I am getting it (slowly), but I haven't explained myself very well. It was my cackhanded way of saying that I understood you only get interest on the amount that is in the account at any one time and not for the whole year.

Bobblehat kindly posted a clear explanation which has been very helpful.

I too struggled to get the attraction, but when I started looking at it again this year the lightbulb suddenly came on.
Critics do not take into account the interest that you are making on the feeder account.
When I started my journey down this rabbit hole, I modelled a feeder account & associated RS's
On my current collection, annually
1. if all the monies  was sat in an IA acc, would generate £1319
2. my RS's will generate £1217, in addition the IA acc gives £784 while the money is waiting to be transferred, so total of £2002

A £52% increase or £683 running the same money through the set of RS's
Hopefully that may assist

Many thanks for your detailed explanation which was very helpful. I'm glad someone understands where I was coming from, even if I may not have explained myself very well. I hadn't taken account of interest earned on a feeder account, which obviously makes a difference. Your reply is appreciated.

masonic

luci said:

nigelholl2 said:

luci said:

I am getting it (slowly), but I haven't explained myself very well. It was my cackhanded way of saying that I understood you only get interest on the amount that is in the account at any one time and not for the whole year.

Bobblehat kindly posted a clear explanation which has been very helpful.

I too struggled to get the attraction, but when I started looking at it again this year the lightbulb suddenly came on.
Critics do not take into account the interest that you are making on the feeder account.
When I started my journey down this rabbit hole, I modelled a feeder account & associated RS's
On my current collection, annually
1. if all the monies  was sat in an IA acc, would generate £1319
2. my RS's will generate £1217, in addition the IA acc gives £784 while the money is waiting to be transferred, so total of £2002

A £52% increase or £683 running the same money through the set of RS's
Hopefully that may assist

Many thanks for your detailed explanation which was very helpful. I'm glad someone understands where I was coming from, even if I may not have explained myself very well. I hadn't taken account of interest earned on a feeder account, which obviously makes a difference. Your reply is appreciated.

The ideal situation is where the feeder account is another regular saver. Consider the situation where you open one regular saver per month, each allowing a deposit of up to £250. By the end of the first year, you could have all your savings in high paying regular savings accounts. Each month, one matures and you use that balance to deposit into all the others and open a new one. Then all of your money will be earning regular savings rates. Those of us with a double digit number of regular savers are achieving something similar to this.

Ch1ll1Phlakes

luci said:

Kim_13 said:

They still pay the highest rates obtainable rates on the cash for the period that it is with them. Sure, a 6.5% Easy Access would return more over the year than a 6.5% Regular Saver, but there are none of the former available. Easy Access rates tend to be cut more quickly than Regular Savers, and require all of the money to be available upfront. £1,800 placed into a 3.25% Easy Access now would return roughly £58.50 in a year, while the 6.5% Regular Saver returns the same with the average balance over the year being only £900. 

Regular Savers with maturities spread over the year are therefore the best way to make sure that an Emergency Fund is available, without losing out to inflation since RS rates are more likely to beat it.

Thanks for that. I didn't think about the average balance being lower. I was just thinking about the full amount being deposited at the outset.

I think you are getting it and what @Kim_13 says is key. While some people say you get half the interest, in reality you have (roughly) half the balance.

For example, a regular saver with £150 per month at 6.5% (as @Kim_13 used above) has a final value of £1800 over twelve months. The expect interest is 1800/2 *0.065 = 900 *0.065 = £58.50.

Note I used 1800/2 i.e. the average balance not half the interest which would give you the same number (1800 * 0.065/2 = 1800 * 0.0325 = £58.50) but is flawed in it's maths and understanding.