One for the oldies - Saga 1 year fix paying 6.97%

Old_Slaphead

By opting for monthly interest option - the 1 year fix account is paying 6.97% gross.

Drawback....only available to us wrinklies.

http://www.saga.co.uk/finance/spf/home_fixed_rates.asp

ManAtHome

Another confusing one (especially for us wrinklies...) from Saga - the 6.97% being "for illustration only" as you can't credit the monthly interest back into the account. Good deal at 6.76% for monthly extracts though.

free4440273

Really wish I had wrinkles now :rotfl:

Milarky

ManAtHome wrote: »

Another confusing one (especially for us wrinklies...) from Saga - the 6.97% being "for illustration only" as you can't credit the monthly interest back into the account. Good deal at 6.76% for monthly extracts though.

Of course you can achieve the rate - but indirectly.

You would put in an extra 3.1575% with your lump sum. This extra amount results in the same amount of interest paid out after 12 months as would have been available had all interest been compounded within the account on the original amount and paid out after 12 months.

This 3.1575% is available again as capital at the end of 12 months of course - together with lump sum - so no 'loss' there. Whilst it in with the lump sum it can't earn interest wherever else it would have been sitting however. But this amount of 'forgone' interest is just equal to the interest on the interest which is paid out (monthly) from the fixed rate account. The fixed rate pays out 6.76% (or 0.5633% per month) - which appear to be more than 3.1575% - but of course the average amount which has been paid over a period of one year is more like half of the total amount paid out - and that is how the interest it earns should just balance the interest that 3.1575% would earn (at the same rate)

[Trust me]

LittleVoice

You've certainly confused me there, Milarky.
If you are saying that at the beginning of the term you put in more capital then you are simply getting the same rate of interest on a bigger pot of money, aren't you?

ManAtHome

Milarky wrote: »

Of course you can achieve the rate - but indirectly.
[Trust me]

rofl - could you explain that again in 14-point with lots of space between each word...

Milarky

Example £10,000 @ 6.97 AER

Deposit £10319.74 and receive 58.13 per month x 12 = £697.61

£319.74 would have earned 19.18 at 6% (say) outside the SAGA account however..

58.13 per month over 12 months (starting after 1 month) earns '6%' [above] on

58.13 for 11 months (the amount paid out at the start of month 2)
58.13 for 10 month
.
.
58.13 for 2 months (the amount paid out at the start of month 11)
58.13 for 1 months

In other words on 58.11 [monthly] x 5.5 [months]= £319.74

This paid out interest thus earns exactly the same amount. And note that is is [almost] independent of actual interest rate too.. i.e. we could have used '3%' and the results would tally as required.

Milarky

The exact way of working this required addition out reduces to a formula:

5.5 x [the GROSS rate]
_______________________
12 - 5.5 x [the GROSS rate]


Eg when the gross rate (without compounding) is '6.76%' we get

5.5 x 0.0676
_______________
12 - 5.5 x 0.0676

=

0.3718
_______
11.6282

=

0.031974

Geoffo_M

Whoops sorry wrong forum - I was looking for the savings forum. What language is that above?

meester

Milarky wrote: »

Example £10,000 @ 6.97 AER

Deposit £10319.74 and receive 58.13 per month x 12 = £697.61

That's very silly. It's quite clearly impossible to get 6.97% AER if only some of your money is earning interest at that rate! Depositing more money is not going to do it for you.

You have £58.13 per month for 12 months.

If you are getting 6% on this (0.5% per month), then the return is quite simply the sum of the series

58.13 + 58.13 * 1.005 + 58.13 * 1.005 * 1.005 + 58.13 * 1.005 * 1.005 *1.005 etc.

i.e. a geometric series

Sum of the first 12 terms is (standard formula) 58.13 * (1.005^12-1)/(1.005-1) = 717.12

£717.12 represents 6.949% interest, plainly NOT 6.97%, because the interest only earns interest at 6%!!!!

You can derive a general formula for the blended interest rate based on the gross monthly rate from Saga and also the interest rate at the destination.

I can't be bothered myself though, it's going to work out about the same sort of figure.

Milarky

meester wrote: »

That's very silly. It's quite clearly impossible to get 6.97% AER if only some of your money is earning interest at that rate! Depositing more money is not going to do it for you.

Shame for you that it works however...

Scenario 1: SAGA compounds to 6.9734% on an amount of £10,000[because we ask them to, and they agree to] and we leave £319.74 in A.N. Other Bank through the year

Scenario 2: SAGA doesn't compound and pays out £697.61 interest on an amount of £10,000 plus £319.74 we have taken out of A.N. Other Bank instead and put it with the 10K.

Under Scenario 1 we get £697.34 SAGA interest after 12 months plus interest (at A.N. Other Bank's rate) on £319.74

Under Scenario 2 we get £697.61 SAGA interest [larger amount] over 12 months which is deposited at A.N. Other bank each month and equates to a balance of £319.74 - and thus we get the same additional interest on this amount as under scenario 1 - whatever their rate - as well as the same amount of SAGA interest - which is fixed rate - and in both cases we have same total capital.

[I think where we are at cross purposes is that you can never get the compound rate on all of your capital with SAGA paying it out - you have to tie up capital out side the account. But then who is going to put every pound they have into a fixed rate and not even be prepared to live off the interest - because they demand it gets compounded.?]