savings interest - how accurate?

Shylock_249

https://forums.moneysavingexpert.com/discussion/comment/81904676#Comment_81904676

I'm pleased that you are are able to laugh. I still make my wife laugh after 55 years of married life 😂

My thoughts on the matter (Shylock, The Minister of Good Ideas) is that it is unwise of HMRC to estimate income on interest next year based on the figure of last year, ie two years ago. There are plenty of posters on this forum complaining that HMRC's figure is grossly incorrect - yes I do know it's an estimate.

If someone received 10k interest in the FY 24/25 when interest rates were 5% it seems unwise to me for HMRC to estimate that the individual will receive a further 10k in FY 26/27 when interest rates might have fallen to 4%, ie (if my maths are correct) a fall of 20%. I'd have thought that a simple algorithm could be introduced based on the interest movements (disregarding interested added to capital) and make the estimated interest, NOT a further 10k but 8k. The same could apply if interest rates increased.

Keep Smiling 😀

eskbanker

If someone received 10k interest in the FY 24/25 when interest rates were 5% it seems unwise to me for HMRC to estimate that the individual will receive a further 10k in FY 26/27 when interest rates might have fallen to 4%, ie (if my maths are correct) a fall of 20%. I'd have thought that a simple algorithm could be introduced based on the interest movements (disregarding interested added to capital) and make the estimated interest, NOT a further 10k but 8k. The same could apply if interest rates increased.

Although it's undoubtedly possible to make it sound simple conceptually, that sort of logic would still only improve the accuracy of estimates slightly, given the way that interest rates fluctuate within as well as between tax years, together with balances changing significantly in both directions for many (major purchases, inheritances, etc), savings habits changing, more use of tax shelters, lag effect of fixed rate products maturing, etc, etc, so unadjusted figures are rarely going to be accurate, but some sort of arbitrary average rate-based 'indexation' will still be way off the actual answer for most.

sheramber

https://forums.moneysavingexpert.com/discussion/comment/81905044#Comment_81905044

Presumably the computer has been programmed to increase the interest on the assumption that you will save the same amount plus the interest received previously.

It is okay for them to estimate but not okay for us to make a more realistic estimate since we know what we have or have not saved.

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/81905253#Comment_81905253

I don't believe there's any such logic applied - apart from anything else, HMRC are only aware of the interest income and have no idea about balances and rates, so someone earning £1K of interest could have done so at 1% on £100K or 5% on £20K and they'd have no inkling, therefore the default interest income figure is the same as the previous year, without being adjusted by any such algorithms or assumptions.

And it is OK for savers to provide more accurate estimates where they're materially different, that's what this thread and plenty of others like it have explained.