Mortgage Rate Rises

someone check my working out please
using: 5% bond, 7% reg saver, 5% easy access/isa (not counting for any tax)

TGlrT99.png
 
Last edited:
if my numbers are correct, dan is somewhat right, at a steady state, you do get £60/yr interest in bonds vs £45.5 on the regular saver
however as it takes quite a while to build up the easy access, you massively lose on the compounding effect, so yes the interest rate on the easy access matters a lot
 
Again to clarify.
If you were doing multiple years and building up funds that meant you could not invest them in regular savings you would put the excess in the next highest earning account/bond.

You don't have a choice of 1 here, you have multiple opportunities available so you select the highest paying one, max it, and work down the list.

Regular savers are literally almost always the highest paying accounts there are. There is a reason they limit how much you can pay in ;)
 
Mercenary Keyboard Warrior said:
He is NOT earning an average of 3.5% Hes earning exactly what the headline rate is 7%.
I cannot believe you are still struggling to grasp this. Its why your struggling with your whole argument.
Click to expand...

He's only earning the full 7% on the first £1000. The 2nd £1000 is at 6.4% because it's only invested for 11 months, the 3rd £1000 will be invested for 10 months so effective rate of 5.8%. By payment 12 you're only earning one month's interest on that last £1000 making an effective annual rate of 0.6%. This all averages out to approx half the headline rate.
 
danlightbulb said:
He's only earning the full 7% on the first £1000. The 2nd £1000 is at 6.4% because it's only invested for 11 months, the 3rd £1000 will be invested for 10 months so effective rate of 5.8%. By payment 12 you're only earning one month's interest on that last £1000 making an effective annual rate of 0.6%. This all averages out to approx half the headline rate.
Click to expand...
The effective rate over a 12mo window. You don't have to measure your wealth over a 12mo window. If he has a max of X per month then he is getting the highest rate he can afford at the point he actually has the money.
 
dlockers said:
The effective rate over a 12mo window. You don't have to measure your wealth over a 12mo window. If he has a max of X per month then he is getting the highest rate he can afford at the point he actually has the money.
Click to expand...

What should he do with payment 12 in your example? Should he invest it at 7% for 1 month then move it or lock in 5% for 12 months?

If he moves it to a 5% account then sure he should take the 7% for a month first rather than take the bonds immediately.

Which is where I think people are coming from having thought about it some more.

But if the next best account is only say 3% rate them he'd be better off taking the bonds now.

I didn't expect ISAs to be so high actually, as in recent years they've been utterly crap. And easy access accounts also have been crap.

My interpretation of the Pensioncraft videos was that bonds are yielding better returns than savings accounts, which if that isn't the case then I don't get why he would bother suggesting them.

So I was assuming the follow on rate was less than 5% bond return.


Example: today you have a 7% reg saver with one month remaining and a 3% ISA to follow it, or access to a 5% 12 month fixed bond.

If you invest £1000 in the reg saver you'll get 1 month at 7%, then you move it to the ISA for 11 months at 3%. This averages out to interest of 3.33%.

But if you put that £1000 in a bond today you'll earn 5% over that same 12 month timeframe.

This is the scenario that was in my mind, but it comes undone of course when the ISA rates or easy access rates are also at 5% or more.
 
Last edited:
danlightbulb said:
So I was assuming the follow on rate was less than 5% bond return.
Click to expand...
just had a look as i took your word for bond returns...they're less than 5% at the moment

United Kingdom 1 Year Bond - Historical Data

United Kingdom 1 Year Bond. Updated interactive chart with historical bond data. List of all maturities yields and ratings info.
www.worldgovernmentbonds.com www.worldgovernmentbonds.com

i'm no expert on bonds but i assume it works the same way...if so, then no brainer that regular saver/easy access combo is the right pick
 
danlightbulb said:
If ISA rates are 5% off the bat, why are you bothering drip feeding a regular saver and earning an average of only 3.5%?

Obviously stocks ISA are different beast so not comparable to fixed rate savers.



I just googled the bond rate as I'd been watching some Pensioncraft YouTube videos about buying fixed rate bonds and the guy on the channel is quite keen on it.
Click to expand...

The reason to do regular savers is if you need to regularly save.

If you have 300 a month spare after life and other choice spends.. Then a regular saver is great. You're still getting 7pc on that 300 for 12 months. Then 600 for 11 months.

Most people on salary will be able to make use of it.

I personally use it for my holiday fund.
So I have 400 * 12 at 6.25pc (6.25 for the year)
 
Last edited:
tamzzy said:
just had a look as i took your word for bond returns...they're less than 5% at the moment

United Kingdom 1 Year Bond - Historical Data

United Kingdom 1 Year Bond. Updated interactive chart with historical bond data. List of all maturities yields and ratings info.
www.worldgovernmentbonds.com www.worldgovernmentbonds.com

i'm no expert on bonds but i assume it works the same way...if so, then no brainer that regular saver/easy access combo is the right pick
Click to expand...
5% has been and gone. Mostly, but remember the 7% savings accounts are for tiny amounts of money, for larger sums the 4-4.5% yields on gilts is better than 5% in savings accounts for many people due to the way tax works on them with low coupons.
danlightbulb said:
My interpretation of the Pensioncraft videos was that bonds are yielding better returns than savings accounts, which if that isn't the case then I don't get why he would bother suggesting them.
Click to expand...
Nor watched those videos but sounds like it's right. 4% in gilts with low coupons is like a 6.5% savings account for higher rate taxpayers.
 
Last edited:
This ^^^^

Its all about scale and personal tax positions.

As said regular savers for a good percentage of the population are great for the short term savings, that doesn't stop other investments either then, or later.


It remains (and never will change) that the advice is to merge the list of all debts and savings/investments and sort into declining order, thats the order to attack/fund them. Assuming no other conditions, like say needing some liquid cash etc
If tax becomes an issue then you also reflect the tax position by discounting items to what you would receive.
 
Maccy said:
I'm fairly sure the last ~100 posts have nothing to do with mortgages - there's dedicated savings and investment threads, can we use them please?
Click to expand...
Not to dispute there is a load of tosh over the last 100 pages but deciding whether to overpay or save in this upside down world of some folk with low rates and interest rates being high, it could be a real money printer.
 
You must log in or register to reply here.
Back
Top Bottom