First direct savings accounts

Timmne

Am looking to start saving some money into FD savings accounts (look like OK rates to me so far, please tell me if not!) and I need some help pls...

I've been given some information on the regular saver account which is for 1 year and pays 8% interest, calculated daily and paid on the anniversary.

Does this mean that compound interest is not taken into account?

On my calculations I'll only be losing about £6.50 in interest if this is right but it's more the principle!

Otherwise, I'll use the instant access everyday e-saver that pays 5.25% - at least this'll pay compound and I can withdraw at any point....

Thanks all.

Beate

Yes they will take compound interest into account as interest is calculated daily - just not paid out for a year!

johnmoney05

Beate wrote: »

Yes they will take compound interest into account as interest is calculated daily - just not paid out for a year!

Are you sure?

Not what I understand. Pay attention to "calculated daily and paid on the anniversary".

Compound interest is the concept of adding accumulated interest back to the principal, so that interest is earned on interest from that moment on. The act of declaring interest to be principal is called compounding (i.e. interest is compounded).

For example:-

Not Compound Interest
You pay in £250 on the first of each month. You only get interest payment calculated daily from the first of each month and pay at the end of term. BUT the interest from the £250 will not be calculated.

Compound Interest
You pay in £250 into your monthly saving account. You get paid interest at the end of each month. Then the interest starts earning interest and add into the interest paid at the end of next month.

You can see apparently that First Direct Regular Saver's interest is calculated daily and is paid on the first anniversary of account opening. That means their interest is not compounded.

SparciaM

Think of the regular saver as a yearly ISA.

You pay £250 into it every month, so at anniversary you'll have £3000 in. 8% Gross is 6.4% Net so you'll earn £3000 + £192.30 interest. You can pay anything from £50 - £300 so I'm guessing it's whatever is left in the account at the end of the year term. Max you can put in is £3600 which means max interest would be £230.76

Timmne

I'm not sure I get it!

If I pay in £250 on day one, the interest will be £1.33 for month 1 (although they say it's calculated daily)

If I pay in £250 on day 32, will the interest calculated for month 2 be based on £250, £500 or £501.33?



Ta

Lokolo

£501.33.

Well this is from what I understand when they say calcualted daily. (This is what Egg does anyway).

Each day you will get 6p (5.4p rounded up, they usually round up anyway). And then the interest for the next day is then £250 + 6p, then next day is £250 + 6p + 6p etc... then it will get upto £250 + 6p... + 7p

[EDIT]

Just to state, you won't see this interest earnt, just your bank balance. This is what Egg does anyway, I would assume banks are all similar in some respects with the way they do it.

Timmne

Thanks for this!

I just have a horrible feeling that I'll religiously paid in £250 a month for a year and then they pay me far under what I was expecting!

PLUS, seeing the interest crediting the account each month is what keeps me going - I'm too much of a philestine to save I think...

Thanks again all.

knights

To make this more simple, (at least to me anyway), if you save £250 pm your £3k pot on the anniversary @ 8% will receive approx. £130.00 less 20% tax = £104.00.

regards

johnmoney05

Timmne wrote: »

Thanks for this!

PLUS, seeing the interest crediting the account each month is what keeps me going - I'm too much of a philestine to save I think...

Thanks again all.

I have the same feeling....I would prefer monthly interest credited to my account.

Milarky

As a general rule - if the AER on a fixed rate account is the same as the gross then the interest is not compounded during the year:


The advert from First Direct makes clear that it is 'simple' interest (i.e. just based on the average daily balance)

The average daily balance is 12 months at £250 (or whatever fixed payment you choose) then a further 11 months on the next £250 - and so on... (all payments have to be on the same day of the month with this particular account)

12 + 11 + ... ...+ 3 + 2 + 1 = 78 (=£1625)

But if all £3000 were counted every payment would be invested for the full 12 months and it would consist of

12 + 12 + ... ..+ 12 + 12 +12 = 144 (=£3000)

So the (simple) interest you receive will be 78/144ths of 8% of £3000 = £130

(Why would anyone think it has to be more complicated than that?)

SparciaM

I sent them a message asking how much I'd get by putting £250 into the account.

The said the final return will be £104. As the interest is calculated 8% on £250 for the first month, then £500 for 2nd etc.

I don't have the message they sent, as you can't save them so can paste into here - but is £104 interest on £3000 saved over a year actually good?!? Or if I put my money in a different account (with compound interest etc) would I make more money?

Are they any calculators out there to check how much you'd make from accounts?!?