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  • FIRST POST
    • MrRobots
    • By MrRobots 8th Apr 18, 7:48 AM
    • 6Posts
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    MrRobots
    Over 100k in savings - am I using the right accounts?
    • #1
    • 8th Apr 18, 7:48 AM
    Over 100k in savings - am I using the right accounts? 8th Apr 18 at 7:48 AM
    My wife and I have about 110k in savings. When we can we overpay on the mortgage, but that's capped each year at 10% of remaining balance. We have no other debt to pay down. We save about 1.5k a month.

    We have three Santander 123 accounts (one each and one joint), with 20k in each. With cashback on mortgage and utilities minus account fees, by my calculations it's about 1.5% interest per year.

    We have 30k sitting in two old ISAs. These pay just north of 1%.

    Embarrassingly about 20k is currently just sitting in a bog standard account earning nothing. I know, I know... I had intended to invest this in the stock market, but judging by current performance I think I was right to wait.

    We also own some gold.

    Aside from the 20k of uninvested money, is the rest reasonable?

    I've seen that Tesco is offering 3% on up to 3k. Might be worth trying to open three accounts?
Page 2
    • bundly
    • By bundly 8th Apr 18, 3:54 PM
    • 967 Posts
    • 799 Thanks
    bundly
    No, they advertise a very truthful 5% AER. It works out at exactly 5% AER.

    You need to understand that you cannot earn interest on money that is not in the account.

    So you have a choice...do you want to save £250 a month in an account paying 5% AER, or would you rather save £250 a month in a 1% AER account?

    Or how about putting £3,000 in an account paying 1% AER and drip feed from there to the 5% AER account and enjoy a return of just over 3% AER on the lot?

    I've mentioned "AER" quite a lot there. Do you understand what it means?
    Originally posted by YorkshireBoy
    I really need to get this sorted out and understand it fully.

    "The annual equivalent rate (AER) is interest that is calculated under the assumption that any interest paid is combined with the original balance and the next interest payment will be based on the slightly higher account balance. Overall, this means that interest can be compounded several times in a year depending on the number of times that interest payments are made."

    But someone on another thread said, it's not a genuine 5% because .... ?

    But having had a scoot around, it's still the best deal going for someone in my position, I think.
    • firestone
    • By firestone 8th Apr 18, 4:32 PM
    • 189 Posts
    • 81 Thanks
    firestone
    look at it as the interest rate per payment - so the first pays more then the last but is still paying the rate so you are not losing (but yes you would be better off if you could get that rate at the start on the lump sum)
    • MallyGirl
    • By MallyGirl 8th Apr 18, 5:15 PM
    • 2,611 Posts
    • 7,606 Thanks
    MallyGirl
    I really need to get this sorted out and understand it fully.

    "The annual equivalent rate (AER) is interest that is calculated under the assumption that any interest paid is combined with the original balance and the next interest payment will be based on the slightly higher account balance. Overall, this means that interest can be compounded several times in a year depending on the number of times that interest payments are made."

    But someone on another thread said, it's not a genuine 5% because .... ?

    But having had a scoot around, it's still the best deal going for someone in my position, I think.
    Originally posted by bundly
    If it relates to a regular saver then it goes something like this:
    Deposit £100 on 1/1. Daily interest is calculated (at a rate of 5% per year) for 31 days on £100 to leave the end of month balance as £100.42 (may not be credited till end of year but it will be compounding the interest along the way)
    You add another £100 on 1/2. Daily interest is calculated (at a rate of 5% per year) for 28 days on £100.42 to leave the end of month balance as 201.18 etc, etc.
    At the end of the year, the first hundred pounds has earned 5%, the next £100 has only earned 5% for 11 months, etc onto the last £100 which only earned 5% for one month. If you compare the final balance inc interest with the total paid in across the year then it looks like you only got just over 2.5% but no one would leave the money they havenít yet paid in somewhere that earned zero interest so it is a false situation.
    • YorkshireBoy
    • By YorkshireBoy 8th Apr 18, 5:23 PM
    • 30,133 Posts
    • 17,986 Thanks
    YorkshireBoy
    If it relates to a regular saver then it goes something like this:
    Deposit £100 on 1/1. Daily interest is calculated (at a rate of 5% per year) for 31 days on £100 to leave the end of month balance as £100.42 (may not be credited till end of year but it will be compounding the interest along the way)
    You add another £100 on 1/2. Daily interest is calculated (at a rate of 5% per year) for 28 days on £100.42 to leave the end of month balance as 201.18 etc, etc.
    At the end of the year, the first hundred pounds has earned 5%, the next £100 has only earned 5% for 11 months, etc onto the last £100 which only earned 5% for one month. If you compare the final balance inc interest with the total paid in across the year then it looks like you only got just over 2.5% but no one would leave the money they haven!!!8217;t yet paid in somewhere that earned zero interest so it is a false situation.
    Originally posted by MallyGirl
    Interest is only compounded when it's paid. As such, it can't compound "along the way". That's why with these accounts the AER and the gross p.a. figures are the same, ie described as "5% AER/gross p.a."

    I know of no regular saver that compounds monthly.
    • bundly
    • By bundly 9th Apr 18, 8:44 AM
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    bundly
    Thanks Mally and Yorkie.

    By the end of Mally's post it was completely clear to me. And it makes sense, and it supports what someone else said, that you don't actually get 5% on everything you have saved for the year. Which I was then told was "nonsense".

    "If you compare the final balance inc interest with the total paid in across the year then it looks like you only got just over 2.5% but no one would leave the money they haven!!!8217;t yet paid in somewhere that earned zero interest so it is a false situation."

    Ah, but if the £250/m that I pay into this 5% account comes from a pension received monthly, it would not be in my possession to earn interest elsewhere.
    • eskbanker
    • By eskbanker 9th Apr 18, 10:55 AM
    • 6,823 Posts
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    eskbanker
    I'll just repeat what I said on another recent thread on this much-misunderstood issue about regular saver interest, as it always seems the simplest explanation to me:
    You're not the first and won't be the last to misrepresent regular saver interest as being half the published interest rate on the whole closing balance, but to me it's always far more logical, realistic and helpful to consider it as the full interest rate but on half the final balance, as that's the average over the year.
    Originally posted by eskbanker
    • jimjames
    • By jimjames 9th Apr 18, 11:11 AM
    • 12,545 Posts
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    jimjames
    Thanks Mally and Yorkie.

    By the end of Mally's post it was completely clear to me. And it makes sense, and it supports what someone else said, that you don't actually get 5% on everything you have saved for the year. Which I was then told was "nonsense".
    .
    Originally posted by bundly
    It is nonsense. You get 5% on everything in the account. As I mentioned elsewhere, would you be happy to pay off your mortgage and still be charged interest by the bank on the amount you've paid off? Because it's exactly the same scenario where money is payable based on a balance that isn't in the account.
    Remember the saying: if it looks too good to be true it almost certainly is.
    • bundly
    • By bundly 9th Apr 18, 12:41 PM
    • 967 Posts
    • 799 Thanks
    bundly
    I'll just repeat what I said on another recent thread on this much-misunderstood issue about regular saver interest, as it always seems the simplest explanation to me:
    Originally posted by eskbanker
    Ah yes! That's superb! CLear as day now! Very clever!
    • bundly
    • By bundly 9th Apr 18, 12:56 PM
    • 967 Posts
    • 799 Thanks
    bundly
    You get 5% on everything in the account.
    Originally posted by jimjames
    Yes. I think the downside is not the % but the restrictions on that NW account, that you cannot pay in more than £250 at a time.
    • teddysmum
    • By teddysmum 10th Apr 18, 3:21 PM
    • 8,989 Posts
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    teddysmum
    Yes. I think the downside is not the % but the restrictions on that NW account, that you cannot pay in more than £250 at a time.
    Originally posted by bundly
    You can sneak in an extra payment , if the saver is opened near the end of the month, followed by subsequent payments early the next and subsequent months. As NW don't set a target amount (ie 12 x max payment), you can put in another £250 which will earn almost a month's interest, the first two payments getting 12 months' and nearly 12 months' interest , too. (Small amounts gained, but why not ? )
    • teddysmum
    • By teddysmum 10th Apr 18, 3:26 PM
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    teddysmum
    When I reached £100k I would have given up!

    (Which is easy to say when you have no need for significant cash savings)
    Originally posted by greenglide
    Why not, if the money is available ? We have stuck ours, not earning the 'decent' rates, in Premium Bonds and this month has been the first , for over a year, that we have both had a zero win.
    • greenglide
    • By greenglide 10th Apr 18, 4:46 PM
    • 3,070 Posts
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    greenglide
    Because, in general, without a need for cash savings of a huge amount (£100k of cash savings is "unusual" unless saving for property etc) there are better places than cash savings.

    MSE used to refer the savings as "losings" (with good reason) although I havent heard this recently. The effect of inflation on savings must be recognised.
    • jimjames
    • By jimjames 10th Apr 18, 5:15 PM
    • 12,545 Posts
    • 11,178 Thanks
    jimjames
    Because, in general, without a need for cash savings of a huge amount (£100k of cash savings is "unusual" unless saving for property etc) there are better places than cash savings.
    Originally posted by greenglide
    Absolutely. I keep the absolute minimum of cash savings which can fairly easily be covered by the decent rate accounts and everything else gets put into investments or pension. Obviously it's different if you're saving for a specific short term event like house purchase but holding large amounts of cash for no good reason isn't a great idea for long term wealth.
    Remember the saying: if it looks too good to be true it almost certainly is.
    • bundly
    • By bundly 11th Apr 18, 10:49 AM
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    • 799 Thanks
    bundly
    You can sneak in an extra payment , if the saver is opened near the end of the month, followed by subsequent payments early the next and subsequent months.
    Originally posted by teddysmum
    I LOVE these kind of Sneaky Genius tips!
    • DennisTenus
    • By DennisTenus 11th Apr 18, 11:18 AM
    • 147 Posts
    • 14 Thanks
    DennisTenus
    Absolutely. I keep the absolute minimum of cash savings which can fairly easily be covered by the decent rate accounts and everything else gets put into investments or pension. Obviously it's different if you're saving for a specific short term event like house purchase but holding large amounts of cash for no good reason isn't a great idea for long term wealth.
    Originally posted by jimjames
    Except that recently the markets have been terrible. I invested in October 2017 and majority are down (I'm down overall).
    • eskbanker
    • By eskbanker 11th Apr 18, 11:23 AM
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    eskbanker
    Except that recently the markets have been terrible. I invested in October 2017 and majority are down (I'm down overall).
    Originally posted by DennisTenus
    ....which is why jimjames refers to investment being considered more appropriate for the long term, i.e. at least five years and preferably ten or more. There will always be short term fluctuations, so being down over a period of six months is nothing to be concerned about, and anyone looking for a home for money for six months obviously shouldn't consider investments rather than savings for this very reason!

    The worst thing you could do is to lose faith at this point and sell at a loss, whereas more seasoned investors will see lower prices as buying opportunities....
    • DennisTenus
    • By DennisTenus 11th Apr 18, 12:16 PM
    • 147 Posts
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    DennisTenus
    ....which is why jimjames refers to investment being considered more appropriate for the long term, i.e. at least five years and preferably ten or more. There will always be short term fluctuations, so being down over a period of six months is nothing to be concerned about, and anyone looking for a home for money for six months obviously shouldn't consider investments rather than savings for this very reason!

    The worst thing you could do is to lose faith at this point and sell at a loss, whereas more seasoned investors will see lower prices as buying opportunities....
    Originally posted by eskbanker
    Yes I realise it's for the long term. Problem is it's either that or generally rubbish rates in the short term, with little in between. I know there is 2/3 year bonds/fixed rate accounts but these are generally only slightly better than instant access with the downside of not being to access it.

    And yes I have been buying.

    I take it you would have no doubt in recommending that I put this years 20K ISA allowance straight in now at the start of the tax year if I can afford it with enough cash left over for emergencies?
    • eskbanker
    • By eskbanker 11th Apr 18, 12:30 PM
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    eskbanker
    I take it you would have no doubt in recommending that I put this years 20K ISA allowance straight in now at the start of the tax year if I can afford it with enough cash left over for emergencies?
    Originally posted by DennisTenus
    I wouldn't necessarily recommend it as a one-size-fits-all solution when everyone's individual circumstances will differ, but put it this way, that's what I'm doing!
    • MM2002
    • By MM2002 11th Apr 18, 12:52 PM
    • 80 Posts
    • 9 Thanks
    MM2002
    I wouldn't necessarily recommend it as a one-size-fits-all solution when everyone's individual circumstances will differ, but put it this way, that's what I'm doing!
    Originally posted by eskbanker
    Iím looking to do the same, have 20k in vanguard cash isa, waiting to transfer to lifestrategy 60 or 80.
    I know all about it being long term investment but still wondering whether to wait and see what happens with us/syria about to kick off.
    Is this likely to make much of a difference or would you still just get it in now eskbanker?
    I understand vls is in very diverse stocks so any one conflict probably wonít impact more than a percentage or so, but is it still worth waiting to see?
    • eskbanker
    • By eskbanker 11th Apr 18, 1:18 PM
    • 6,823 Posts
    • 7,075 Thanks
    eskbanker
    Iím looking to do the same, have 20k in vanguard cash isa, waiting to transfer to lifestrategy 60 or 80.
    I know all about it being long term investment but still wondering whether to wait and see what happens with us/syria about to kick off.
    Is this likely to make much of a difference or would you still just get it in now eskbanker?
    I understand vls is in very diverse stocks so any one conflict probably wonít impact more than a percentage or so, but is it still worth waiting to see?
    Originally posted by MM2002
    You'll see the old adage about "time in the market not timing the market" used frequently on here and, as with all such sayings, it's not infallible but it's a decent rule of thumb.

    Something else often mentioned is that any such uncertainties that the average punter knows of are already affecting markets, so being vaguely aware of potential geopolitical volatility isn't really much of an advantage.

    Or to put it another way, carry on regardless....

    Having said that, don't go in with an expectation that fluctuations will be of the order of a single percentage point - the global nature of VLS (and other similar products) does have a damping effect but doesn't flatten movements to that degree!
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