Over 100k in savings - am I using the right accounts?
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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)0
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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.
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’t yet paid in somewhere that earned zero interest so it is a false situation.I’m a Senior Forum Ambassador and I support the Forum Team on the Pensions, Annuities & Retirement Planning, Loans
& Credit Cards boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing forumteam@moneysavingexpert.com.
All views are my own and not the official line of MoneySavingExpert.0 -
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."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.
I know of no regular saver that compounds monthly.0 -
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.0 -
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.0
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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".
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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.0 -
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 ? )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.0 -
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 wrote: »When I reached £100k I would have given up!
(Which is easy to say when you have no need for significant cash savings)0
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