Which is the best option?

Milarky

I could have a regular savings account, saving the same amount every month, with a term of five years with one of three options:

1) an 'escalator' account which is paying 6.4% (variable) for the first 12 months - then increments each year of +0.25%

that is, 6.4%..6.65%..6.9%..7.15%..7.4% or

2) a 'fixed bonus' account paying a bonus of 0.85% on top of the 6.4% (variable) rate throughout or

3) a 'step down bonus' account paying a bonus of 1.40% in year 1, 1.15 in year 2 0.90% in year 3, 0.65% in year 4 and 0.40% in the final year?

bristolleedsfan

Milarky wrote: »

I could have a regular savings account, saving the same amount every month, with a term of five years with one of three options:

1) an 'escalator' account which is paying 6.4% (variable) for the first 12 months - then increments each year of +0.25%

that is, 6.4%..6.65%..6.9%..7.15%..7.4% or

2) a 'fixed bonus' account paying a bonus of 0.85% on top of the 6.4% (variable) rate throughout or

3) a 'step down bonus' account paying a bonus of 1.40% in year 1, 1.15 in year 2 0.90% in year 3, 0.65% in year 4 and 0.40% in the final year?

personally although i would go for lump sum fixed rate bonds at this moment in time, if i was forced to take one of the options i would go for no 2 because whilst interest rates are tipped to reduce in 2008 in all likelyhood they will edge back up in 2009/2010.

whos the provider offering those options out of "interest"?:think:

oldfella

I make the gross interest payable assuming £250 per month for 5 years
1806.21
1856.455
1826.288

masonic

oldfella wrote: »

I make the gross interest payable assuming £250 per month for 5 years
1806.21
1856.455
1826.288

That's strange, because when I enter the figures for scenario 2 (£250pcm @ 7.25% for 5 years) into this calculater, it comes out with £3012 interest, so I think you've gone wrong somewhere. By my own calculations, I make it:-

1) £3087
2) £3171
3) £3106

Edit: Also, if the variable rate was at 5.4%, the amounts would be £2601, £2681 and £2618 respectively; and at 7.4%, they would be £3591, £3679 and £3613. So it appears that wherever the underlying variable rate moves, it doesn't have much of an effect on the order, with option 2 giving you the most interest in each case (though this treatment is somewhat crude).

oldfella

oops - so much for my spreadsheet

at least the answer was right !