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Regular Saver - how do you calculate interest?

(7 Posts)
Cindy34 Sat 29-Mar-14 14:27:13

When a bank offers a regular saver account, at say 3% apr, how do you work out what the interest would be?

For example, paying in 200 each month, for 1 year.
It would not be 3% of 2400, as there is not 2400 in the account until the final month.

If you had 2400 to invest, would it be better in an ISA paying say 2% or put into a regular saver drip by drip, with regular saver at 3% - how do you work it out?

Chasingsquirrels Sat 29-Mar-14 16:46:43

If you put the same amount in each month calculate the interest at half of the total cash paid in,

Ie £200 pm = £2400pa. Interest at 3% approx £36. Less 20% tax = £29.
ISA £2,400 in up front @ 2% = £48.

Plus the ISA money stays in and keeps earning interest.

I have a number if regular savers each year, but I use up my isa cash allowance first (basically last years regular savers go straight into an ISA).
I only take them out if I can get a better rate than I would elsewhere, and am drip feeding excess income not holding capital to feed into them.

Chasingsquirrels Sat 29-Mar-14 16:48:16

I've actually just been looking at rates as mine are finishing in Apr, you can get 6% on some accounts if you hold a current account. But mostly they are at 3%, which is what I am getting on my current account anyway.

Sunnymeg Sun 30-Mar-14 16:13:39

Another way to do this is to take £200 multiply by the interest rate, divide by 365 and multiply by the number of days in the month.

So £200 invested on 1st Jan would earn 51p gross in January.
£400 (February) would earn 92p gross. £600 (March) would earn £1.53 and so on. If the interest was applied to the account at the end of March you would add 51+92+1.53 = £2.96 gross = £2.37 net.
Thus your April interest would be calculated on £802.37 assuming tax is paid.

If you pay in on different days every month, you calculate the number of days between payments and use that in your sum.

This can be a faff to calculate, but is useful for accounts when interest rates are banded according to the balance held.

CogitoErgoSometimes Sun 30-Mar-14 17:11:12

Easiest way to do it is to use one of the many online interest calculators. There's one here for example.

TalkinPeace Sun 30-Mar-14 20:04:05

SPREADSHEETS are your friend
then you can set the parameters and see where you are at any time

I should probably do a savings one ....

Cindy34 Sun 30-Mar-14 23:11:42

Thanks. Looks like I should use ISA allowance first before considering regular saver.

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