Overpaying Mortgage VS Savings

Bravepants wrote: »

I'm afraid you have fallen for the advertising blurb of the banks! They advertise what look like seemingly high rates to draw your attention, but there are conditions on how much money is allowed to be paid in per month. Sometimes people don't quite spot that, or understand the implications.

Nothing misleading. It's peoples comprehension that's the issue. The banks wouldn't be allowed to market such products on the basis you suggest.

I have to disagree a bit with the way you're presenting this.

Bravepants wrote: »

It's all very well advertising an "interest rate" of 5%, but they limit how much you can pay in so they don't pay the cash equivalent of a year's worth of interest at 5% on all of the money that you COULD pay in..

No, of course they don't pay interest on money that you COULD pay in if you were allowed to deposit all your worldly wealth in one go. They just pay interest on what you DO pay in, while a second bank or building society will pay you interest on the money that you DO pay to them and don't pay to the first place.

They advertise the high interest rate to attract customers

Having accounts that other people don't match, is good advertising

It would be better and clearer if they said, "Pay in your £6k, leave it there for a year and we'll give you 2.7% at the end of the year"...the banks COULD say and do that couldn't they?

They COULD, but you would have to miss out on being able to put part of that £6k elsewhere for much of the year.

i.e., financially they could do it, because it would cost them only the same amount of cash interest as what they were paying on only £500 a month of your money being deposited into the account, yet they would have all £6k on your money for all of the year. It would be a good win for them and a loss for the consumer who would need to find all that money up front and could not save or invest it elsewhere to earn further interest.

Some customers like you are out for the lazy life and would prefer to get less overall interest by just putting the whole money into the account at the start and getting a lower rate, rather than getting the same amount of cash interest from drip feeding the account at a higher interest rate *and* having some interest earned on the rest of your money elsewhere. There are many people like you who are out for the simple life.

However what these accounts are, are accounts that accommodate people who are 'regularly saving'. Many can't deposit £3k or £6k in month one because they are waiting for an employer or pension fund to send them monthly earnings which is how they would fund the account. So what you are saying is please slash the rate to 2.7% for those people because you prefer the account to have a lower rate and allow a higher initial deposit because you are wealthier. Well, good for you.

Also, their market research will tell them that if you are regularly engaging with them (making ongoing deposits, watching your balance rise) you might be more likely to be tempted to buy other products which make money for them and help subsidise the product. The subsidy from the cross selling model makes it possible for them to make more total interest available to you on the account.

But no, 5% looks better on their websites as it's a huge eye catching rate, and some poeple just don't get the implications of being forced to drip feed.

The implications are that you can't put all your entire wealth into the account on day one and instead are restricted to paying in only £x per month or whatever the limit is. Anyone with a brain will see on the sign-up page the key facts on how much they can pay in.

What you're saying is that those people are misled because they assume they will get paid interest on money that isn't in the account and is instead earning money for them in some other bank account, or is in their employer's bank account because they haven't earned the money yet.

Well, you can't help some people being duped because they don't think things through, but no need to change the rules for everybody just to accommodate the slow ones

Personally I cannot wait for the day that all this rubbish stops. There used to be a time when you put what you want into a savings account and got the advertised rate for everything that was put in.

You do *literally* get the advertised rate (in terms of AER) for everything that is put in. Every single pound in the account earns the [5% or whatever] AER, pro rated for the number of days the money is in the account which is how all accounts work.

What happens is the 'everything that can be put in' is restricted so they only pay interest on the money they want to receive because that's all they'll accept into the account.

Nowadays it's all about dividing your money up into £3k chunks and having multiple bank accounts, drip fed from a central point. It's complicated, a hassle and doesn't lend itself to the simple life.

The simple life pays you base rate 0.5% , libor or potentially a bit more or less depending on the banks own operating costs or whatever the market will stand for the money you have available to put in.

If you want to get the best rate, you are going to have to look hard for it or work hard to qualify for it. Why should you deserve to be paid a special 'higher than base rate' on all your money without any effort on your part. Does the world owe you a living?

If you have pots of cash I'm sure it would be nice to get paid a high interest rate just for sitting back and doing nothing. Maybe the government should regulate it and you wouldn't need to seek out offers because all banks have to offer the same rates regardless of their business model or appetite for certain types of business. One would imagine such rates would *not* a be very high.

So, meanwhile back in the real world... That doesn't happen.

Bravepants wrote: »

Nonetheless, with the easy online accessibility of banks these days one can sign up to an account in minutes. It may be a mix of misunderstanding and eagerness to get their money working that makes people miss the "details". To some the details are obvious, but not others. Not everyone is on the ball numerically as others, they have other strengths, but I think banks do take advantage legal though it may be.

Yes, it has always been the way, people who are greedy and "eager to get their money working" won't take time to read the facts they're presented with because of their greed overruling their sensibilities Lack of numeracy doesn't help but these people with poor maths skills are not being 'ripped off' when a bank accepts £250 a month from them and pays an AER of 5% on every penny on it (ten times the BoE base rate)