Can anybody tell me how to do the maths?

[meetmynewusername]

I am not very good with numbers and I’m not sure how to calculate what I need to know.

I am putting away £100 in savings each month. I’m adding it to an account that pays 3% interest (paid monthly). There is £2500 in the account currently.

My bank also offer a regular saver, with 5% interest. I’m trying to work out if the £100 will earn more interest if I open a regular saver, or if I should keep adding it to the larger amount in my savings account.

Maybe it’s really obvious as 5% is higher than 3%, but does the larger amount in the main saving account make a difference?

Sorry if this is a mathematically illiterate question!

Can't you just transfer the £2500 into the regular savings account? Or are you not allowed to put large amounts in?

Usually a ‘regular saver’ account at higher interest has a maximum monthly contribution e.g. £250 (£3,000 per annum). So you should keep the money in the 3% account, but drip feed it into the 5% regular saver. That way all your money is earning the most it can.

If you pay into a regular saver, you will get 3% on the £2500 in the existing savings account and 5% on the £100 / month. If you pay the £100 into the existing savings account, you will get 3% on the £2500 and 3% on the £100 / month.

Leave the existing money where it is and pay the monthly amount into the regular saver. Usually after a year the money is transferred out of the regular saver and into a normal savings account.

As always, MSE is a clear explanation: www.moneysavingexpert.com/savings/best-regular-savings-accounts/

Ahh. Yes that makes total sense. So obvious really, but I couldn’t see it!

Thanks :-)

After a year I can transfer my regular savings balance back into my 3% account and start again with a new regular saver. Makes sense. Thank you!

You're correct that 5% interest is more than 3% interest :)

We save to a regular saver every month and when it runs out (assuming it's one of those where it runs for a year but you get higher interest) we transfer the money to our normal but lower interest savings and open a new one and start again. That way you can maximise the interest on both.

If the regular amount you are saving is lower than the maximum allowed, then top it up to the maximum using money from your normal savings.

Is it the NatWest one? I've got that.

If so, the max monthly contribution is £150 but you can also set up "round-ups" (to the nearest £) from each debit card spend from your current account to be put into the savings account and these don't count towards the £150 - these really add up for me.

I have the rest of my savings, a few thousand, in an account paying 2.85%.

No, there's no compounding that makes it better to have a higher amount in the lower earning savings account, but better to be using the 3% account for anything you can't put into the 5% account than having it sitting in a current account or 0.5% savings account.