What difference in % is required to pay to switch savings accounts?

Robert_Sterling_3

miller wrote:

4/365 ~= 1%
1% x 5% = 4.95%.
So on £100 you would lose 5p - still negligible ;-).

Yes my 1% of 5% was OK then it went pear shaped

4.95% is more like it

Thank you

Robert_Sterling_3

miller wrote:

One thing that hasn't been mentioned in this thread and other threads is closure interest. Say that £100 had been in for 6 months @ 5% the closure interest credited would be £2.50. Assume you are moving to another account at 5% (!) you would then earn some extra interest on the £2.50 -- roughly equivalent to what had been lost in this example (assuming interest credited annually i.e. 5% AER/gross).

If the AER is 5% then you do not get 2.5% for 6 months.

If you got 2.5% for 6 months the AER would be 1.050625.

grumbler

Robert_Sterling wrote:

If the AER is 5% then you do not get 2.5% for 6 months.

If you got 2.5% for 6 months the AER would be 1.050625.

Well, I was sure too that this is the case ... until I lost the argument with MJSW in this thread: Bradford and Bingley e.savings account (see post #18).

I assume that your 1.050625 AER is in fact 5.0625%

miller

Robert_Sterling wrote:

If the AER is 5% then you do not get 2.5% for 6 months.

If you got 2.5% for 6 months the AER would be 1.050625.

The AER *was* 5% until the moment you closed the account after 6 months and took the closure interest (I think I am sort of agreeing with you here).

Imagine the effect of an account where interest was paid yearly at a rate of 5% gross / AER 5%, but you closed and re-opened the account at the end of every month (forcing the closure interest to be added). In effect you would then have an account paying monthly interest with an AER of 5.12%.

I still reckon its around £2.50. Using this calculation

Daily interest is 0.05 / 365 = 0.000136986
On £100 that is = 0.0136986 p / day (!note this is not added to the balance - interest is only calculated daily, not compounded daily)
181 days to 30 June = 0.0136986 * 181
= £2.48