Halifax 10% saving account

window_cleaner

First post - please be gentle!

I read Martin's article about the £1200 you can save in the Halifax account.

In it, he says something about having an 'average of £600' in it - what does that mean?

If you pay in £100 per month, after 12 months it adds up to £1200. So why the reference to an average of £600?

Sorry if I'm being dumb and missing something!

Thank you.

System

Hi Window Cleaner, welcome to the boards. I havent read the article by Martin that you refer to, but maybe he means not everyone is able to save £100 a month which is the maximum amount allowed. I am aiming at £100 a month but my other Halifax regular saver, i am unable to pay in the maximum amount which is £250.

window_cleaner

Thanks Judi,

Here's a link to the page I refer to: http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid1089574348,16470,

Hmm, think you'll have to copy and paste it.

There's a highlighted blue box half way down where this reference to 'average of £600' can be found.

Tim (window cleaner)

grumbler

window_cleaner wrote:

In it, he says something about having an 'average of £600' in it - what does that mean?

If you pay in £100 per month, after 12 months it adds up to £1200. So why the reference to an average of £600?

The balance starts with £100 and gradually rises month by month to £1200 during a year. As a result the average balance during a year is about £600. More correct result is:
(100 +200+300+...+1200)/12=£650.
The average balance is usefull when calculating total interest earned. First month you earn interest on £100, second - on £200, ... last - on £1200:
100*10%/12+200*10%/12+...+1200*10%/12=(100+...+1200)/12*10%=£650*10%. For any regular saving account your annual interest can be approximately estimated as average_balance*APR.

window_cleaner

Thanks grumbler, I think I can see why it would be useful for comparing with other accounts.

grumbler

window_cleaner wrote:

... I think I can see why it would be useful for comparing with other accounts.

Don't make a common mistake! If you don't have a a lump sum to save you should compare APRs, not interest earned. And even if you have a lump sum you can use 'drip-feed' scheme to increase interest earned. Read my post in 'Regular Savings Accounts discussion'

MrLew

Grumblers correct, lump sums and regular savings are not comparable.

I've being doing a few sums and if your child has a lump sum to invest, they can earn an effective interest rate of 7.98%. Using a combination of Halifax's regular saver & save4it accounts (10% & 5.05%) they get a very good deal.

The child opens a Save4it account and deposits the whole lump sum (say £1,200). The child uses the Save4it funds to fund the regular savings account with £100 per month. Therefore receiving a combination of 5.05% and 10% on the whole £1,200.

This gives you interest of:
Regular saver £67.03
Save4it £28.69

Total interest =£95.71 / £1,200 = 7.98%

I've used an example of £1,200 which illustrates the max you can fund the regular saver with but the effective interest rate is the same for any amounts.

If your child doesn't have a lump sum to take advantage of both accounts then the regular saver account still has an effective rate of 5.59%.

Hope this makes sense.

mrlew

window_cleaner

Yes, thank you. In fact we are planning on investing our child benefit and child tax credit in the Halifax 10% account. In the second year, I guess we could, after the money has been transferred to the save4it account, transfer back £100 each month to achieve what you put in your reply - ie, obtain 10% and 5.05% - if these rates are applicable then.

grumbler

I totaly agree with everything besides this:

MrLew wrote:

If your child doesn't have a lump sum to take advantage of both accounts then the regular saver account still has an effective rate of 5.59%.

Every penny saved earns effective rate 10%. Only if you divide annual interest by final balance £1200 you get 5.59%. Why final balance, but not starting balance? Actually some 'average' balance should be used. More correct result for Halifax 10% Regular Saver is £62.20 of interest earned during a year. For the above calculated £650 this yelds 62.20/650=9.57%. This result is slightly incorrect (differs from 10%) because compounding interest was neglected when calculating average balance £650.

vmf199

Can I ask what may be a stupid question...

...if I have £5000 in an ISA (6% tax free) would it be worth transferring the max of £250 across each month into the 10% Halifax account. (I think I'd be basic tax payer, not working at mo) I don't know where to start with the maths!

hyposmurf

Im in a similar situation to you and was wondering that to, but if you think about it if say you have 10% from ther web saver 8% after tax although this looks better your ISA can accumulate for longer,longer than a year.Its possible next year this reg saver or ISA interest maybe be dropped,but as a guess it'll be the reg saver which ends up with the lowest interest rate.Remember it being 7% befor tax in the past.I've got a 10% regular saver set up,going to put in £25 month and concentrate the rest on my ISA,not sure I'll even have enough to max my ISA out this year.If I do and my finances look better I'll then increase my monthly reg saver amount.