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when a regular saver is worth it:

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  • I've done a spreadsheet myself that calculates total interest gained based on monthly contribution and interest rates for both accounts (regular saver & source from which money drip-feeds). It doesn't take the days-to-transfer-money into account though, and it calculates interest monthly, not daily - but I think it should be reasonably accurate.

    For the account I currently have (HSBC 8% with their Flexible Saver at a measly 2.85%, putting in £250 per month) the net (20% basic tax rate) interest I'll gain is £134.29, so the equivalent net interest rate is 4.48%.

    For the current best-buy (Alliance & Leicester 10% with 5% on current account balance) the net interest is £183.59, equivalent net rate is 6.12%.

    The most interesting discovery I made is that there's a "magic ratio" you can use to get an estimate of what the quoted rate actually comes to in practice. Forgetting about the interest you get on the "source" account over the year, the number is 0.43 which is approximately 3/7. So when Halifax or whoever says 7%, what you'll actually get from that account is 3% net. And 10% actually means 4.27%. Again, I'm assuming basic tax rate (20%).

    You can check out lots of different possibilities on the spreadsheet. Is there a way I can post the file instead of sending it individually to each person that might be interested?
  • grumbler
    grumbler Posts: 58,629 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    I've done a spreadsheet myself that calculates total interest gained based on monthly contribution and interest rates for both accounts (regular saver & source from which money drip-feeds). It doesn't take the days-to-transfer-money into account though, and it calculates interest monthly, not daily - but I think it should be reasonably accurate.
    There is a simple formula in post #5 here that gives very good results:
    pd=(6.5*pr+5.5*ps)/12
    For the account I currently have (HSBC 8% with their Flexible Saver at a measly 2.85%, putting in £250 per month) the net (20% basic tax rate) interest I'll gain is £134.29, so the equivalent net interest rate is 4.48%.
    Formula yields 4.51%. Is 0.03% difference essential for you?
    For the current best-buy (Alliance & Leicester 10% with 5% on current account balance) the net interest is £183.59, equivalent net rate is 6.12%.
    6.17% - a little less accurate, but much simpler.
    The most interesting discovery I made is that there's a "magic ratio" you can use to get an estimate of what the quoted rate actually comes to in practice. Forgetting about the interest you get on the "source" account over the year, the number is 0.43 which is approximately 3/7.
    6.5/12*0.8=0.433 in fact. I was explained here many times that average balance of RS account is 6.5/12*(monthly investment). See, for example, Regular Savings Accounts discussion.
    You can check out lots of different possibilities on the spreadsheet. Is there a way I can post the file instead of sending it individually to each person that might be interested?
    Do you still think that the file can add something important to a simple formula?
  • Fair enough. :doh:
  • grumbler
    grumbler Posts: 58,629 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    Fair enough. :doh:
    Welcome to MSE! :D :beer:
  • bhiman
    bhiman Posts: 17 Forumite
    Dagobert wrote:
    I couldn't agree more.


    But that is precisely where the formulae come in handy: You can see within seconds if the gain g is so small that - according to your personal judgement - it isn't worth the hassle.

    I have set the calculations up in an Excel sheet.

    I find it quite amazing how easily one can be fooled by big numbers:
    A regular saver at 6% with a max. monthly instalment of £250 only gains £15.95 (using the assumptions of my previous example). But I find that the formulae put exactly that into perspective.

    Dear Dagobert,

    Could I have the Excel spreadsheet?

    Thanks

    Bhiman
  • WaltD
    WaltD Posts: 127 Forumite
    Rather than struggle with the mathematics, you may prefer to see some real figures! My Halifax 7% Regular Saver (1 year) account matured on 5 April 2006. I invested the maximum permitted amount, i.e. £250 per month for 12 months, drip-feeding it monthly by Standing Order through a Halifax Current Account. The net interest I received from the Regular Saver Account at the end of the year was £86.50.

    Whether you think it's worth all the hassle of setting it up is your personal decision! I have found that setting up *any* kind of account with the Halifax is an uphill struggle all the way!
  • schiff
    schiff Posts: 20,259 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    Just read through this thread and found it amazing! So much detailed effort to gain extra pennies, or is it shillings, and I find myself mesmerised. I am careful in the management of my money (Mum from Sheffield) though not ungenerous, but I think I would stop short of this level of minutiae.

    Simple way of saving money is by carting round £5.53 in your wallet rather than £105.53. At say 4% (net) interest you would gain £4 a year. Probably more than derived the above machinations! Wonder if anybody would start a thread on this topic? A cash stooze perhaps!

    I'm in awe of your cleverness - no joking!

    :beer:
  • My equation for this:

    Money saved from transfers < effort
  • RayWolfe
    RayWolfe Posts: 3,045 Forumite
    1,000 Posts Combo Breaker
    You have left PLEASURE out of your equation. Some get pleasure from building ships from machsticks, others, like me, build savings from pennies. If I didn't enjoy it, I wouldn't do it.
    Cheers
    Ray
  • Dagobert
    Dagobert Posts: 1,625 Forumite
    My equation for this:

    Money saved from transfers < effort

    It's not about saving money on transfers but about determining whether a regular saver is worth it going for in the first place - a tool to aid your decision. Once you have calculated the gain, you can then decide whether the gain is worth the effort of opening the account at all.

    Why guess if you can calculate it? Hardly takes 2 minutes with a spreadsheet.
    Dagobert
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