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Thread: Savings Accounts.. whos good at Maths???

  1. #1
    Regular Member luke4487's Avatar
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    Lightbulb Savings Accounts.. whos good at Maths???

    Now.. I know this isn't moneysavingexpert.com lol.. but I was just pondering something and started googling out of control..

    Its almost AER payment time on my savings account and seeing as Natwest only shell out 1% AER on my savings, its not going to be a lot...

    Just wondered if there are any bankers out there or people who know what they are on about as I came up with a little theory and I am not sure if its right but could help in people pocketing extra cash...

    Now google tells me that AER interest is calculated daily (compound interest or something), and then thats how they work out how much you have had accurately throughout the year etc etc.

    SO.. I have a 1% Annual interest rate. 1%/365 days = a 0.0027% daily interest rate.

    So if I had 5K in my account for 1 month it would work out:

    5000/100 times 1% which is 50.00 GBP (per annum)

    And this would be 50 * 0.0027 = 0.135 GBP a day

    So on 5000 GBP I make approx 13 and a half pence a day
    (which when multiplied by 365 again = 49.275 so the number matches close to 50 which is okay seeing as I have rounded off)

    But if I had 6000GBP in my account with the same calculations

    6000/100 times 1% = 60.00 GBP (per annum)

    Which would equate to 60 * 0.0027 = 0.162 GBP a day
    (which is just over 16p a day interest)

    Soooo....

    in a month with 5000 in my account I would make 0.135 * 30 = 4.05 GBP
    and
    in a month with 6000 in my account I would make 0.162 * 30 = 4.86 GBP
    (obviously this isnt paid until the end of the year when all months are totalled up)

    But....

    Lets say I dont have that extra grand to save all the time, but I will have that amount available to spend throughout the month i.e. wages!

    So if I get paid on the 1st and pop my 1000 GBP wages into my 5000 GBP savings for 10 days before transferring it back to my current account to be spent by the mrs....

    Then I get 0.162 (for daily interest@ 6000) * 10 days = 1.62
    PLUS
    Then I get 0.135 (for daily interest@ 5000) * 20 days = 2.70

    Which gives me 4.32 GBP per month interest which is 0.27p a month more than if I had left my wages in my current account.

    I have made no more money but just transferring it across for a few days has gained me more interest????

    Seems like something for nothing to me so I must have got it wrong? Be nice if someone who KNOWS what they are talking about can verify if its wrong or right..

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    Regular Member Ian S100's Avatar
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    Have you thought of using an online AER calculator

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    with such a low rate of interest I wouldn't worry about it to be honest. Change your account would be better for more interest.

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    Regular Member Vauxhall Thru & Thru's Avatar
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    ..but in principle you're right. Essentially it boils down to holding that £1K in savings for 10 days a month (i.e 120 days a year) against which interest is accrued. Better than nothing at all.
    I do agree with the above post...saving account rates are useless at the moment, so make sure you are using your cash ISA quota first (about 3.1% best rate at the moment) - and don't forget that the interest free amount has increased to around 5K this year (not sure of the exact number). Then consider shares.. I have some shares in Rolls-Royce (I work for them) and these have out performed any savings account over the last 12 months.

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    Regular Member m8internet's Avatar
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    I agree, 1.0% is nothing, it's not even inflation proofing!

    If you are investing money, then you need to be looking for a return of between 5% and 8%
    However, this does mean locking your money away for between 2 and 5 years, but it is "investing" after all

    Equally, you could get more than that
    If you have an employer pension with contributions, then increase the AVC to the maximum
    Not only is it tax free, but your employer contributes as well
    Even better if it is externally controlled! (Just in case the employ goes pop)

    Finally, don't put all your eggs in one basket
    I now have four pension plans, each pays a different "investment" rate based on the risk and investment type
    One is currently performing very poorly, as it performs best with high interest rates, at the other end of the scale one has been performing at its best ever in the last two years (prior to that it was awful)

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    Regular Member the-wizard's Avatar
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    Don't bother with a savings account!!, bang the lot into an offset mortgage account along with every single penny you earn and get, ie from child tax credits/family allowance, wages, ok at this moment your savings wont give massive returns but as the mortgage rates rise you will see MASSIVE SAVINGS!!, bin there done that and saved £1000's YES £1000'S. , IT WORKS AS SUCH for every £1 you have in a linked account you get charged £1 less interest on your mortgage per DAY!, And you get a cheque book and normal type bank /switch card to use, there's NO limit to gain access to your money anytime anywhere, its just like a normal bank account that's linked to your mortgage, so a £10,000 savings against a £10,000 mortgage you pay NO interest!, your repayments can be altered to zero but the amount you owe wont drop, pay your repayments as normal and your mortgage will drop equivalently by how much you pay each month!!.

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    Regular Member luke4487's Avatar
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    I agree that the savigns account is absolute pants... but thats the best account I could get with access (as its for our wedding in August so couldnt get an ISA as need access to pay off car, reception etc..).

    Wishing I had spotted this before though for a few extra pennies lol!

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