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Stealth cost of moving savings
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Consumerist
Posts: 6,311 Forumite
As a newby to this forum, I don't know if this might be of any interest (sigh!) to other "Rate Tarts" out there but before I start chasing that extra fraction of a percentage of interest on my hard-earned savings, I first estimate how long it is likely to take for me to get back the interest the banking system deprives me of whilst in their transfer system.
Let's call it the break-even period. I work it out as follows :-
Break-even period (days) = Transfer Time (days) x Old Rate (%) / Rate Difference (%)
Always compare like with like - gross with gross or net with net, the result's the same.
For example, transferring out of an account paying 5% gross AER into an account paying 7% gross AER and losing interest for, say, 10 days, would work out like this :-
Break-even period (days) = 10 x 5 / 2 = 25 days
So, in this case, it is likely to take 25 days of interest at the higher rate to pay back the interest lost during the 10-day transfer period.
Once the transfer is complete, the break-even period can be assessed more accurately because, by then, the exact, rather than an estimated, transfer time should be known.
Clearly, the shorter the break-even period is - the better; as it gets longer, the greater are the chances of one, or both, of the rates changing again.
So, what about moving on to another account paying an extra 0.25% of interest. In the example cited above, starting at 7%, the break-even period then becomes 10 x 7 / 0.25 = 280 days.
This may be an extreme example but the question now becomes - would it be worth waiting 280 days (more than 9 months) just to break even?
The point is to be aware of the cost which the banks can impose on us by stealth. Use electronic transfers where possible to cut the transfer time drastically. Where you have to use a cheque to open an account, send a cheque for the minimum initial deposit and top up later by electronic transfer.
I hope, anyway, this helps you ask yourself the right questions before taking the plunge.
Let's call it the break-even period. I work it out as follows :-
Break-even period (days) = Transfer Time (days) x Old Rate (%) / Rate Difference (%)
Always compare like with like - gross with gross or net with net, the result's the same.
For example, transferring out of an account paying 5% gross AER into an account paying 7% gross AER and losing interest for, say, 10 days, would work out like this :-
Break-even period (days) = 10 x 5 / 2 = 25 days
So, in this case, it is likely to take 25 days of interest at the higher rate to pay back the interest lost during the 10-day transfer period.
Once the transfer is complete, the break-even period can be assessed more accurately because, by then, the exact, rather than an estimated, transfer time should be known.
Clearly, the shorter the break-even period is - the better; as it gets longer, the greater are the chances of one, or both, of the rates changing again.
So, what about moving on to another account paying an extra 0.25% of interest. In the example cited above, starting at 7%, the break-even period then becomes 10 x 7 / 0.25 = 280 days.
This may be an extreme example but the question now becomes - would it be worth waiting 280 days (more than 9 months) just to break even?
The point is to be aware of the cost which the banks can impose on us by stealth. Use electronic transfers where possible to cut the transfer time drastically. Where you have to use a cheque to open an account, send a cheque for the minimum initial deposit and top up later by electronic transfer.
I hope, anyway, this helps you ask yourself the right questions before taking the plunge.
Warning: In the kingdom of the blind, the one-eyed man is king.
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Comments
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Not all savings movements will incur such loss of interest.
E.G : If someone goes to a branch in person of the Mickey Mouse BS ( im not talking about Nationwide, honest.
) gets a cheque for 10000 takes it to a say Bradford and Bingley branch who pay interest on cheque deposits from 1st working day following day of receipt, we assume Mickey Mouse BS stop paying interest on day before withdrawal, so assuming transaction is not done on a friday, number of lost days of interest is 2. 0 -
One day, surely, BLF? Assuming you take the cheque to the B&B the same day, that day is the only day lost.bristolleedsfan wrote: »If someone goes to a branch in person of the Mickey Mouse BS ( im not talking about Nationwide, honest. ) gets a cheque for 10000 takes it to a say Bradford and Bingley branch who pay interest on cheque deposits from 1st working day following day of receipt, we assume Mickey Mouse BS stop paying interest on day before withdrawal, so assuming transaction is not done on a friday, number of lost days of interest is 2.
Though the principle's just the same and the same formula applies, but it will be worthwhile for smaller interest improvements in such a scenario.0 -
Has anyone seen details on this recently? The latest press release I can find is dated 28/4 and though giving the 27 May date I also see the phrase "over the summer". See http://www.apacs.org.uk/08_04_28.html. I've heard nothing from Natwest apart from a vague leaflet.27th May and Faster Payments may make this discussion redundant.
On switching accounts there was a time some years back when I had three accounts, two with cheque-books, and could make quite a good profit by getting the timing right and crossfiring cheques between the three. Sadly they eventually noticed what I was doing (and probably others) and changed their rules but it may still be possible with other accounts. It was the high rates of interest then that made it very effective.
When you switch you also need to bung into your calculation that you'll get your interest when you close an account so the compounding effect will increase the AER.0 -
This can still be played with Lloyds TSB classic plus account - but with restrictions. Best days to pay in are Thursday and Friday - but you need either a good interest paying current account or a current account that is instantly linked to a good savings account for withdrawals and a good overdraft as a buffer.On switching accounts there was a time some years back when I had three accounts, two with cheque-books, and could make quite a good profit by getting the timing right and crossfiring cheques between the three. Sadly they noticed what I was doing and changed their rules but it may still be possible with others. It was the high rates of interest then that made it very effective.
The exciting part with 'Faster Payments' coming up is going to see how many institutions you could send the same £1 (say) around in a single day.....under construction.... COVID is a [discontinued] scam0 -
Bank holiday Thursdays were my favorites.This can still be played with Lloyds TSB classic plus account - but with restrictions. Best days to pay in are Thursday and Friday - but you need either a good interest paying current account or a current account that is instantly linked to a good savings account for withdrawals and a good overdraft as a buffer.
Should be fun. :rotfl:The exciting part with 'Faster Payments' coming up is going to see how many institutions you could send the same £1 (say) around in a single day0 -
That'd be good. I've been meaning to move money on a Monday for a few weeks now... to try to get the transaction completed within that same week (not over a weekend).
The result of this is that weeks/months go by before I remember on a Monday to do it.
I currently have 10 accounts; 7 have money in. I am due to do a big money shuffle... er, tomorrow.0 -
The whole point is that it's likely to be free and faster. APACS is designed to replace BACS as the standard transfer method.... 'Faster Payments' is unlikely to be a free service.I am a Chartered Financial Planner
Anything I say on the forum is for discussion purposes only and should not be construed as personal financial advice. It is vitally important to do your own research before acting on information gathered from any users on this forum.0 -
The calculation assumes you get all interest paid up to the start of the transfer period.When you switch you also need to bung into your calculation that you'll get your interest when you close an account so the compounding effect will increase the AER.
If the banks start charging as they do with CHAPS transfers then that will need to be bunged into the calculation and big time.Warning: In the kingdom of the blind, the one-eyed man is king.
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