Drip-feeding problems

Biscuits

Hi all, first post here.

I'm currently implementing my "Savings fountain", and have got my ISA up and running.

I've also applied for the ICICI HiSave account, as recommended on this site, and was going to get the Halifax Regular saver to drip-feed it with (I'm already set up at Halifax, and the rate is OK so it's convenient).

However, when working out the interest rates the fountain looks like this:

1. NS&I ISA - 6.05% Net
2. Halifax Regular Saver - 5.6% Net
3. ICICI HiSave - 4.8% Net

There is a three-day delay transferring from ICICI to Halifax, which over the year works out at 36 days lost interest - more than a month! Surely that negates the extra 0.8% interest. Am I missing something here? That makes it better just to ignore the Regular Saver all together and have a two-level fountain.

Thanks in advance.

Mikeyorks

Biscuits wrote: »

Am I missing something here?

No. That's the problem with fountains ... they all need water supplies at the right place / time / pressure .... otherwise you finish up with just a bit of a piddle:o

If you fragment your money between different institutions - yet need to feed from one to another on a regular basis .. you hit precisely the problem you're experiencing (lots of previous similar threads if you 'Search'). So you either have to organise round it ... or put up with it .... or change plans.

I use the Halifax Reg Saver .. so just stick the £6k for self / OH into one of their websavers and recirculate it. So the same money has been going round and round for the past 3 years ... and I just extract the interest annually. Other than that .. it's purely automatic. Websaver rate dipped of late - so I've moved it to one of their 'with cash' Webs .. as there's a bonus on that up to July. However - the above works fine for re-circulated funds, but obviously not so well for 'new money' or money from an organisation outside the Halifax family. Hence why you have to plan the problem out of the equation at the start?

BUT ... all is not lost, if you wish to stay with your chosen plan? With effect from the end of May (it's a promise .. not a given) 'faster payments' is introduced. It's been delayed from Nov 07 .. so there is an outside chance of it making it. What that should do is ensure that payments made by Standing Order / bill payments (i.e ad-hoc payments via BACS) and diarised (set up earlier and given a forward initiating date) bill payments .... will reach the target account on the day of initiation. So - that should resolve your problem? As long as 'faster payments' doesn't slip too much ... and you don't use Direct Debit (which will still take 3 days .. but you can't do that to the Reg Saver in any event)

So ... if you're happy with your plan? I'd put it in place and wait for faster payments to join all your feed pipes up seamlessly ... and your fountain will be wonderful .. and not look as though it's got a prostate problem!

DeepSporran

Biscuits wrote: »

There is a three-day delay transferring from ICICI to Halifax, which over the year works out at 36 days lost interest - more than a month! Surely that negates the extra 0.8% interest. Am I missing something here? That makes it better just to ignore the Regular Saver all together and have a two-level fountain.

You don't lose 36 days interest on the whole end-of-year balance. You lose 3 days interest on each deposit. Not the same thing at all.

e.g.

First deposit is in the account for 362 days (i.e. 12 months minus 3 days)
Second deposit is in the account for 331 days ( 11 months minus 3 days)


and so forth

It still reduces the benefit, but not by nearly as much as you imply.

nicko33

Some rough calculations based on 4.8% and 5.6%, and assuming your transferring the maximum £250 each month.

Case 1.
Do nothing, leave all £3000 at 4.8%
3000 * 0.048 = £144 interest

Case 2.
4.8% drip-feeding 5.6% instantaneously on 1st of month

interest on money fed into 5.6%
3000 * 0.056 * 0.5417 = £91

interest on money left in 4.8%
3000 * 0.048 * 0.4583 = £66

Total = 91 + 66 = £157

I think the 3 days transfer time brings the £91 down to £89.62
Total = 89.62 + 66 = £155.62
so not much difference (if I'm right)

but only a gain of £11.62 over doing nothing (is it worth it? )
If the Reg Saver had been 7.5% gross (6.0% net) the gain would be £18.02
If the Reg Saver had been 8.0% gross (6.4% net) the gain would be £24.42


Appendix:
The 0.5417 and 0.4583 are factors I calculate you need to apply
based on:
the fed account has
month 1's payment in the account for 12 months
month 2's payment in the account for 11 months
...
month 12's payment in the account for 1 months
sum(1-12)/144 = 0.5416666

the feeding account has
month 1's payment in the account for 0 months
month 2's payment in the account for 1 months
...
month 12's payment in the account for 11 months
sum(0-11)/144 = 0.4583333

divide by 144 (12 payments * 12 months) to get the factor which compares to all 12 payments being made in the 1st month (i.e. the whole sum in the account for 12 months)

To allow for the 3 days transfer time, it's not as simple as saying the total interest will be about 27/30 of what it should have been:

each individual payment loses 3 days.
month 1 loses 3 days out of 365 days
month 2 loses 3 days out of 334 days
...
month 12 loses 3 days out of 31 days
which ends up being not so much
I calculate that it makes the factor 0.533447 instead of 0.5416666


If I have made some huge error somewhere, I hope someone can point it out

Biscuits

Thanks for the responses all.

Mikeyorks wrote: »

the above works fine for re-circulated funds, but obviously not so well for 'new money' or money from an organisation outside the Halifax family. Hence why you have to plan the problem out of the equation at the start?

The reason I went for ICICI, instead of Halifax Web Saver is because that's what was recommended in Martin's guilde. Also, ICICI's rate is 4.8% Net, whereas the Web Saver is 4.01% Net. I've not started it all yet though, so could still change the plan...

DeepSporran wrote: »

You don't lose 36 days interest on the whole end-of-year balance. You lose 3 days interest on each deposit. Not the same thing at all.

Excellent point, shouldn't have missed that really. Thanks.

nicko33 wrote: »

Maths

Wow thanks for the excellent response! I would never have come up with working out factors like that.

I think given the minimal gain of the drip-feeding (the guide really makes it sound more productive!) and the fact that I still need to save up the funds to start drip feeding, I'll go ahead with a two level ISA - Flexible Savings fountain (step?) for now.

I used those figures to work out what drip-feeding a Halifax Web Saver to a Regular saver is, and that works out at £147, just £3 more than a standard ICICI account with no drip feeding. So going with the ICICI is going to beat the websaver for starters anyway.

Another catch with drip-feeding into a Halifax from ICICI is that you can only transfer to your funds to the linked account, so you have to remember to go in and manually put it into the regular saver account from the linked account. Anyway I'll go with the ICICI for now, and hopefully will be able to start drip-feeding once the "Faster payments" are working.

Mikeyorks

Biscuits wrote: »

whereas the Web Saver is 4.01% Net. I've not started it all yet though, so could still change the plan...

Don't read me incorrectly - I wasn't recommending it .. as the rates have dropped (albeit the 'with card' option is currently 6% gross) - just saying how I circumvent the 'feeding across boundaries' problem.

I may well re-work some of my 'pots' when faster payments does arrive. But the Reg Saver is a bit historic now - so I just leave it to get on with things. And it does give me the advantage of a variable pot of up to £6k in an easy access Web - if I need it short term? As I've found fixed rate products the best to save in for at least the past 12 months.

nicko33

Biscuits wrote: »

I think given the minimal gain of the drip-feeding (the guide really makes it sound more productive!) and the fact that I still need to save up the funds to start drip feeding, I'll go ahead with a two level ISA - Flexible Savings fountain (step?) for now.

The gain will be better if you find regular savers with a higher rate
12% if you have an A&L current acc
8% with Lloyds or First Direct current accs
7.85 % with West Brom Magic 8
7.5% with Leek United (if you're within their area or an existing member)
7.5% with Brittania

These are all fixed 1 year terms though.
You could end up better off with a Yorkshire BS, only 6.85%, but it's not a fixed term, and you can get up to £20,000 in rather than £3000 in the 1-year £250/month accounts.

I would say if you're desperate for every last bit of extra money you can squeeze out, go for the Alliance & Leicester 12%, and do that first to get the extra interest as ealry as possible.

If you want easier admin, go for the YBS because you have less running around opening and closing accounts every time a 1-year deal ends. It is a slightly lower rate, but forgetting about the end of a 7% deal and having it drop to a low rate would negate all that extra work involved in chasing a fixed term deal.

Biscuits

Thanks for clarifying.

If I start a regular saver, I'll definitely have a better look around. I can still see issues with transfers. I.e. for a A&L Regular Saver, it would have to be ICICI > Linked account (3 days), Linked Account > A&L (3 days, or change ICICI linked account to the A&L one). Then the Standing Order from A&L current A/C to the savings.

I don't actually have an extra £3000 to play with right now, so will take the lower interest and flexibility of a flexible account over the monthly payment requirements of a regular saver until I have the funds to attach the drip.

DeepSporran

Biscuits wrote: »

I don't actually have an extra £3000 to play with right now, so will take the lower interest and flexibility of a flexible account over the monthly payment requirements of a regular saver until I have the funds to attach the drip.

If you aren't able to make a fixed monthly payment, either from your regular monthly income, or from a pot sitting in another savings account, there are still some attractive RS accounts available.

For example, this one gives a lot of flexibility on the payments in, and it has a very good interest rate. It doesn't allow withdrawals at all though until the end of the year, so that may be a big disadvantage to you.


Chorley BS Santa Saver

Interest rate: 8.5% gross p.a. variable from 1st December 2007
Monthly payment: £0-150, minimum opening balance £1
Miss any payments: Yes, and in fact missed payments can be made up at a later date
Penalty-free withdrawals: No, cannot make any withdrawals at all
How to open account: By post
Special conditions: The balance of the account will transfer automatically each year on the 26th November to a nominated account of your choice within the Society. The nominated account must be current at the time of the Santa Saver application and remain open until this account is closed.