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Original poster

Silly question re savings

63 replies

Pablosdog · 12/09/2023 18:12

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?

OP posts:
Southeastdweller · 13/09/2023 13:54

And that’s some great, detailed maths to show that 7 is greater than 5, so 7 is better.

If it was as simple as that OP wouldn’t have come on here in the first place. It’s not like she can transfer £10K to this First Direct account in one go and therefore gain £700 interest. She clearly wants to gain as much interest as possible, so this thread is an example of why drip-feeding a lump sump from one account to an account that pays more interest and moreover doesn’t allow you to transfer a lump sum isn’t always worthwhile, especially at the moment. What’s the point transferring the money every month for a crappy £20? She’d gain £620 in interest after one year if she moved it all into the guaranteed growth bond account offered by NS&I, which pays 6.2 % interest.

MiddleParking · 13/09/2023 13:56

Southeastdweller · 13/09/2023 13:54

And that’s some great, detailed maths to show that 7 is greater than 5, so 7 is better.

If it was as simple as that OP wouldn’t have come on here in the first place. It’s not like she can transfer £10K to this First Direct account in one go and therefore gain £700 interest. She clearly wants to gain as much interest as possible, so this thread is an example of why drip-feeding a lump sump from one account to an account that pays more interest and moreover doesn’t allow you to transfer a lump sum isn’t always worthwhile, especially at the moment. What’s the point transferring the money every month for a crappy £20? She’d gain £620 in interest after one year if she moved it all into the guaranteed growth bond account offered by NS&I, which pays 6.2 % interest.

Well, try this one. Which is the greater of £0 and £20?

ConsuelaHammock · 13/09/2023 17:09

Leave it where it is. I have the first direct account and it’s only £136 ish for the year. My main savings do into an ISA at 4 %

ConsuelaHammock · 13/09/2023 17:10

*go

ConsuelaHammock · 13/09/2023 17:11

If you don’t have any isa , can you open one and move it all? My husband is getting 5.4 ish with RBS . That’s untaxed too

viques · 13/09/2023 17:16

Or you could transfer the £10,000 into a NSI bond, they currently have a One Year Bond offering 6.2%

viques · 13/09/2023 17:18

Sorry, saw SouthEasDweller got in before me.

irregularegular · 13/09/2023 17:21

It's not complicated at all! Some people are making it out to be complicated, but provided there are no penalties/costs/restrictions that you have not mentioned then it really is just a matter of comparing 5% and 7% and going for the higher interest rate. Each £ in Tandem will earn interest at a rate equivalent to 5% a year, right up until the moment you transfer it to FD, when that £ starts earning interest at a rate equivalent to 7% a year. So that's clearly an improvement of 2% per year for each £ that you transfer over. Obviously it is not as good as if you could transfer £3600 for the whole year, you will only get the extra 2% interest for part of the year, but it is still better than not doing it at all.

Working out the actual numbers is messy, but there is no doubt that it is better to transfer the money.

irregularegular · 13/09/2023 17:23

If it was as simple as that OP wouldn’t have come on here in the first place. It’s not like she can transfer £10K to this First Direct account in one go and therefore gain £700 interest. She clearly wants to gain as much interest as possible, so this thread is an example of why drip-feeding a lump sump from one account to an account that pays more interest and moreover doesn’t allow you to transfer a lump sum isn’t always worthwhile

It is that simple. The question wasn't whether this was the best she could do. The question was simply whether it was better to transfer the money or leave it where it is. Clearly it is (a bit) better.

Unexpectedlysinglemum · 13/09/2023 17:24

Echio · 12/09/2023 18:59

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%.

Thank you for explaining this so clearly this is what I thought but couldn't have described it like that!

Cottagecheeseisnotcheese · 13/09/2023 17:42

Every £1 is getting at least 5% for the whole year the first 300 gets 12months at 7%, the next 300 gets 1 month at 5% and 11 months at 7%,the next 300gets 2 months at 5% then 10monthsat 7% until the last £100 which gets 11 months at 5% and 1 month at 7% so obviously there is a gain drip feeding into FD account

WasThereAnotherTroyforHertoBurn · 13/09/2023 17:56

You get 7% on the 3,000 at the end of the term.

That is why the account is capped at £300 per month, I did this account last year, when it matured I m oved the 3000 into a different lower rate savings account (best available at the time) stuck the interest in savings and I then feed the account this year from the original £3000.

In other news NS &I are offering this.

https://www.nsandi.com/products

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https://www.nsandi.com/products

VanGoghsDog · 13/09/2023 19:14

WasThereAnotherTroyforHertoBurn · 13/09/2023 17:56

You get 7% on the 3,000 at the end of the term.

That is why the account is capped at £300 per month, I did this account last year, when it matured I m oved the 3000 into a different lower rate savings account (best available at the time) stuck the interest in savings and I then feed the account this year from the original £3000.

In other news NS &I are offering this.

https://www.nsandi.com/products

A) it's £3,600 at the end of the year
B) no, you don't get 7% on the full £3,600, you get c3.5%

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