Birmingham Midshires e-Saver Issue 2 - BEWARE

Dagobert

aleph_0 wrote: »

It's not really a big disaster, ... you can transfer instantly to another BM account

Of course, this isn't a disaster. A lot of us here are creative enough to find work-arounds to generate a little more gain.

But this wasn't the point I was making: the AER is widely understood as a means of comparison; even people who have no idea how to calculate interest or cannot be bothered to check out T&Cs will base their product decision [amongst other facors] on the AER.

BM have designed Issue 2 interest rates so that they remain at the top of interest rate tables but are in fact paying less than for Issue 1. This change has been well thought out and will go unnoticed by most. They know fine well that most people won't read the small print, won't bother or won't understand anyway.


The idea of the AER is to enable a comparison between accounts of different interest payment frequency illustrating what the rate would be if interest was paid and compounded once a year. If interest isn't allowed to compound, the AER becomes a mockery for purposes of comparison and just serves as a marketing tool.

sloughflint

trashcan wrote: »

I opened an account on 6.5%. Presumably this is issue One, but I am not sure, as i can't find anything on any of my correspondence . It just says Internet account- what issue have i got. No where on my login does it say either. Not that I can find.

Check the letter that gives you your username. Mine states that interest will be credited to the account annually.

aleph_0

Dagobert wrote: »

You wouldn't if you were on dial-up waiting 45 secs for a page to load. ;-)

We can request the threads to be merged. I was annoyed myself when I saw that I had needlessly added a thread.

Well, I would probably disable all images and then dialup would probably cope.

It's fine, the other thread has been left to die, and doesn't contain any other information.

10_66

Dagobert wrote: »

BM have designed Issue 2 interest rates so that they remain at the top of interest rate tables but are in fact paying less than for Issue 1

They're not the only ones to play this game. A few months ago another table topping Building Society did exactly the same, I think it was Newcastle, but I can't be sure about that. I don't know how they're allowed to advertise the AER as 6.51%, if it's not possible to achieve this by simply leaving your money in the account.

gelato_cat

Thanks for pointing this out. I went to log on earlier, saw this on the front page of their site and was thinking about opening one! I already have the first issue so think I will stick with that for the time being. Hopefully the rate won't drop.

However, I still don't really get the whole AER thing. I mean, I understand your explanation and don't think they should be allowed to call it AER if the interest isn't compounded. But I've opened one of their six-month fixed rate "bonds" and am now wondering if the AER is misleading on that, as the interest is paid at the end of the term as opposed to the end of each month

Suze

Dagobert wrote: »

Birmingham Midshires' 6.5% e-Saver has been replaced by e-Saver Issue 2.

Unlike the e-Saver I opened a few weeks ago, Issue 2 only has a monthly interest option: gross 6.32%, AER 6.51%.

Everyone looks at the AER* and 6.5% looks great. AER illustrates what the interest rate would be if interest was paid and compounded once each year.

However, the interest will not be compounded, see T&Cs:



This makes a complete nonsense of the AER. While this allows the account to be advertised with a table topping rate of 6.5%, it will only ever pay 6.3%.

In my view, this is a total con.

Dagobert

Suzey wrote:

However, I still don't really get the whole AER thing. I mean, I understand your explanation and don't think they should be allowed to call it AER if the interest isn't compounded.

The AER is the rate you would be getting if interest was paid annually and if the interest payments were compounded.
The banks are required to display the AER. technically speaking it is correct. In practice though, due to the interest not being compounded it is a meaningless figure.

What you will get is 6.32% / 365 on your daily balance.

Suzey wrote:

But I've opened one of their six-month fixed rate "bonds" and am now wondering if the AER is misleading on that, as the interest is paid at the end of the term as opposed to the end of each month

The AER figure for short-term bonds (< 1 year) is meaningless. The AER will be higher than the gross rate and therefore look good.
You would really only achieve the quoted annual equivalent rate if the bond was re-invested at the same rate at maturity.

Again, what you are getting is gross rate / 365 on your daily balance.

trashcan_2

It took me a while to find Issue 1's interest rates, still 6.5% but now that they are tucked away in the closed accounts page, the rate will drop without us noticing.
Banks should do what Virgin does and write and tell you when the rate goes up or down.

gelato_cat

Thanks.

So, for short-term accounts, is comparing the gross going to give you an accurate picture of what's going on?

Suze

Dagobert wrote: »

The AER is the rate you would be getting if interest was paid annually and if the interest payments were compounded.
The banks are required to display the AER. technically speaking it is correct. In practice though, due to the interest not being compounded it is a meaningless figure.

What you will get is 6.32% / 365 on your daily balance.



The AER figure for short-term bonds (< 1 year) is meaningless. The AER will be higher than the gross rate and therefore look good.
You would really only achieve the quoted annual equivalent rate if the bond was re-invested at the same rate at maturity.

Again, what you are getting is gross rate / 365 on your daily balance.

Dagobert

Suzey wrote: »

So, for short-term accounts, is comparing the gross going to give you an accurate picture of what's going on?

It depends on what you are comparing:

If you look at two 6-month investments paying interest once at the end of the term, it does not matter whether you look at AER or gross rate.

If you look at two 6-month investments one of which pays monthly and compounds, the other just once, you need to compare AER.

If you compare a 6-month bond to a 9-month bond it is difficult to make a meaningful comparison unless you have a crystal ball to know what will be offered in 6 months.

If you are comparing two easy access accounts and plan to withdraw before the year is up, one pays monthly, the other annually, both with the same AER, then the AER comparison will be meaningless; the money in the monthly account has no chance to compound for a year and therefore gives you less interest.

You can only compare gross figures if the compounding terms are the same. If they aren't and if you don't look at a whole year you need to calculate case by case.

Mikeyorks

oldfella wrote: »

have opened an esaver 2 transferring the interest back to esaver 1 - no problem.

Might not be a problem .... but I'm genuinely curious as to what it is a solution to? Why not simply put the funds direct to Esaver 1 .... as you clearly have one of them - and attain the better interest rate (at least for the time being) overall?

You're not hedging the £35k limit as both are with the same Institution .... what am I missing?