Interest question

[northernballer]

I am embarassed I don't know the answer to this but in my defence, I have spent the last year getting my finances I order and am trying to educate myself and be more financially savvy.

I opened a savings account in July which pays 6% p/a. I'm paying in around £150 per month for 'fun' savings (main savings are in an ISA and have a decent pension).

The 6% is paid at the end of the 12 month period, how will this be worked out?

It will be added at the end of the 12 months and you’ll get an interest statement

Im sure interest will be calculated daily and then added to the balance at the end of the period which in your case is 12 months

6% over the time that the money is in there.

so eg if you pay in 150 on day 1, the interest on that is 150 x 6% = £9.

if you pay in another £150 a month later that months money only has 11 months of interest so 150 x 6% x 11/12 = £8.25

the next month only has 10/12 of interest etc

Sorry fixed auto calculated bit in post above now

https://www.moneysavingexpert.com/savings/regular-savings-calculator/

This will calculate it for you. You will get approx £150x6% + £300x6%x11/12 + £450x6x10/12 etc

A quick estimate is average balance x interest. Average balance is 6.5 x monthly savings

I.e. 6.5 x £150 x 6% = £58.50
Note it won't be this exact amount as not all months are the same length.

Thank you all!

That can’t be right. If you do a crude calculation of 150 x 12 x 6%, it’s £114.12.

Interest is calculated daily and then added at the end of the year so you need a calculator.

Sum (12+11+10....+2+1)/12=6.5
As I said it's only an estimate as months aren't all the same length and interest is calculated daily.

@TeenagersAngst
You only have the full amount in the account for a month so only get interest on the full amount for a month. The remaining 11 months you get interest on the amount in the account at the time.

Yes, of course! Thanks

If you pay into a regular saver paying 6% interest

At the end of the year you will receive 3% interest on the money

You would be better putting your money into an easy access saver or ISA paying 4% or more

If you drop feed money from an easy access saver paying 4% into a regular saver paying 6% then you will get more interest than leaving it all in the easy access saver as at least some of the money is earning the higher rate.@

No, that isn’t correct. The best thing to do is to drip feed the higher rate regular saver from the lower rate easy access account. You’ll end up with more interest that way. If you had £3000 in an easy access account earning 4% you’ll get £118 or so a year interest. Drip feed £150 in to a 6% regular saver each month from that account and after 12 months you’ll get a total of £139 in interest,
£58 from the regular saver + £81 from the normal savings account.

If someone had the whole amount (£1800 or more), they’d be better off having all of it in a 4% savings account and transferring £150 a month into the 6% regular savings. That would give them 5% overall.

And if anyone’s ‘interested’, Cahoot has a 7.1 regular saver (up to £300 a month) and First Direct pays 6.5%. I use the strategy above for both with rainy day/emergency savings I have outside my ISA

Ha!
Posted before finishing the thread - anyway, what they ^ said

OK so I have £7k in an ISA which pays 4.5%, no intention to touch this as its already too low as I had some big unexpected expenses recently.

Then I've been paying in £150 per month since July to a 6% easy access savings - I thought this was the best thing to do as it was a higher rate but it looks like not? Upping this to £250 per month after Xmas. It pays 6% for a year.

Help!

if the money you are putting into the 6% account is money you haven’t got yet, then this is a good plan.

The time regular savers aren’t as good is if you have the money already sitting earning low interest - as you only get the higher interest for part of the year as it only sits in the high interest account from the month you put it in.

And you need to take it out and put it somewhere else as soon as the year is up as they usually default to a much lower rate then

Compound interest is a great concept to understand

op if you want another regular saver next year, try first direct - they are paying 7% on up to £300 per month.

i keep the surplus “fun” money in a chase account with a boost paying 4.3% and then transfer the money monthly- so get interest on both