Silly question re savings

[Pablosdog]

Please excuse my ignorance here!
I have 10k in a 5% savings (Tandem)
I have opened a 7% saving account which I can transfer a max of £300 a month into for 1 year (First Direct) the interest compounds and is paid at maturity.

I planned to withdraw £300 a month from Tandem and put it into the First Direct account as it’s higher interest.

My husband says I’ll earn more overall leaving the full sum in Tandem due to the interest being paid on the total amount. Is he right?

No. I don’t know how either of you could possibly think he is tbh!

Are there restrictions on the Tandem? Is it meant to be there for a fixed term?

Well I didn’t, but I’m low confidence in numbers so I’m doubting myself! So it make sense to transfer the £300pm to gain the higher interest?

No Tandem is easy access as far as I recall. Will double check that

Your husband is right. 5% for the whole year on all the money is way better than 7% for month 1 then dropping each month.
I normally work on the final % on these sort of monthly savers to be half of the headline rate, so only 3.5%.
your husband is right

Where does she say it’ll drop every month? Can you clarify OP?

Its 5% on full 10k or..

7% on
month 1 £300
month 2 £600 etc for 12 months

No it doesn’t drop. After 12 month the interest is paid then I’ll withdraw it all

I believe it drops to a lower interest rate after the 12 months but that won’t effect me as I’ll be withdrawing it

You are right

So you can only pay £300 per month into FD, you can't lump sum? If so I just looked at a compound interest calculator online and if you leave it with Tandem you'll have £10511.62 in 12 months

Whereas if you move it to FD at £300pm you'd have £10545.74 split between the two. So not a huge difference and I haven't taken into account any charges to withdraw from Tandem.

I feel like I’m missing something because it seems so obvious that the Tandem is the better option. Can you run it through an online calculator to show him?

Urgh I mean that FD is the better option!

It is a regular monthly saver and says in the blurb at the bottom of the page that if you save £300 a month for 12 months, a total of £3600, you get £136 interest back

in a 5% account for a year you get £3600 x 5% = £180 interest

your husband is a clever man and is right.

FD is isn’t it?! I’ll carry on and ignore him then 🤣

I can sort of see his thinking. The extra interest will be very small as it's only the first £300 that will get the full 7%. (I think)

’The whole lump sum’ isn’t a consideration assuming your remaining £6,400 will stay in the 5% account (let’s say these are your only two product options for the sake of argument). All you need to work out is how much £300 a month would earn in the Tandem account in a year versus how much it would earn in the FD account.

But if you’re putting £300 in per month, the last £300 isn’t only getting 7% interest for 1 month. Presumably it’s getting 5% interest for 11 months then 7% for the final month etc
It’s not a question of having it all at 5% for one year, or all sat somewhere earning 0% then transferring £300pcm to the 7% account - that seems to be what your husband is presuming?

Transfer as much as you can to the first direct account.
Keep the balance in Tandem.

Yes, the Tandem account will get less interest, but you will get more from first direct than you loose in Tandem.

After a year your £300 a month with interest will be worth £5742 with you transferring £3600.

If only

The First Direct account is a monthly saver folks, and you save £300 a month into it.
You get 7% on the first £300, but the second £300 only get 11/12ths of 7% as it is on,y in for 11 months. The final £300 only gets 1/12th of 7%.

so you get back your £3600 plus £136.00 = £3736 at the end of the year.

£3600 in an account that pays 5% across the whole year gets the £3600 plus the interest of £180 which is £3780

monthly savers are very deceptive and rely on people who can’t do the sums.

me and the OP husband seem to be the only ones who can see this fairly simple sum and have realised the best place to leave the money is the 5% account.😎

Where did those figures come from???

Accountant here.

It is better to move your money into the 7% account.

It's quite complicated to show the monthly interest when it's compound, and you're changing the base amount each time.

Look at each £300 individually
You'll get 7% on the first 300 because it's in the high rate account for 12 months.
Then, for the next full year you'll get 6.8% on the next lot (1 month at 5% and 1 months at 7%)... and so on...
Your last 300 you move you'll have got 5.12% on (11 months at 5% and one month at 7%).

@isthewashingdryyet
That calculation is assuming you are not getting any interest on the money until you move it. What you're forgetting is the months that the money hasn't yet moved, you're also getting 5% until you move it. Add that on, and you are better doing the 7%.

But the money that was paid in in the final month would still have been getting the 5% in Tandem each month.

Doesn’t your maths only apply if it’s sat in a non-interest bearing account the rest of the year?