Mortgage Rate Rises

Mercenary Keyboard Warrior said:
Its not semantics at all.

I told you above, its 54% of the regular saver interest and 46% of the alternate, which is because the regular saver starts the day you pay in, that amount sits there for 12 months, the next payment 11 months etc.
The alternate account has 11/12ths for 1 month, 10/12ths the next month etc

So you can setup an equation, 54/100a% + 46/100b% x full capital amount = interest from regular savers.
annual account or bond etc is a% x full capital amount.

Your confusing yourself by halving the rate, its sensible logic to calculate the interest, but its the interest for the full amount for that account only.

Here you go, £100 invested in bond at 5% or regular at 7%
MonthInvestBond @5%Regular @7%
1​
100​
0.4​
0.6​
2​
100​
0.8​
1.2​
3​
100​
1.3​
1.8​
4​
100​
1.7​
2.3​
5​
100​
2.1​
2.9​
6​
100​
2.5​
3.5​
7​
100​
2.9​
4.1​
8​
100​
3.3​
4.7​
9​
100​
3.8​
5.3​
10​
100​
4.2​
5.8​
11​
100​
4.6​
6.4​
12​
100​
5.0​
7.0​
Year interest.
32.5​
45.5​

Or £1200 being available at the start invested in regular at 7%, bond at 5% and instant access at 4% (should be able to beat 4% but using for comparison sake)
(Bond total interest £60, savings accounts total interest £67.44

InvestBond @ 5%Regular at 7%Instant at 4%
1200​
60​
45.36​
22.08​
Click to expand...

Ok it's a start but you need to run it out longer so it reaches steady state. Because in that scenario half of the bonds haven't matured yet.

As the bonds mature you can also drop those into the same 4% instant access account that you're dropping the reg saver into after a year is up. Which your example doesn't take into account. Run it out for 2 years to let the bonds mature and see what happens to total returns then.
 
danlightbulb said:
Ok it's a start but you need to run it out longer so it reaches steady state. Because in that scenario half of the bonds haven't matured yet.

As the bonds mature you can also drop those into the same 4% instant access account that you're dropping the reg saver into after a year is up. Which your example doesn't take into account. Run it out for 2 years to let the bonds mature and see what happens to total returns then.
Click to expand...

Sometimes, you just have to say you were wrong.

Regular savers are quite easy roughly.
You can just use the total. After month 12 and (roughly) half the headline rate will be your annual rate.

Ie. If it's 7pc, then 3.5 works well.
 
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danlightbulb said:
Ok it's a start but you need to run it out longer so it reaches steady state. Because in that scenario half of the bonds haven't matured yet.

As the bonds mature you can also drop those into the same 4% instant access account that you're dropping the reg saver into after a year is up. Which your example doesn't take into account. Run it out for 2 years to let the bonds mature and see what happens to total returns then.
Click to expand...

Oh for gods sake.

What you would actually do if you went into a longer timeframe is apply the same logic you do all along. You maximise the amount you can put into the highest rate.
So if you rolled into further periods you would, assuming all the rates stayed the same,
1) maximise regular saver
2) maximise next highest available product
3) and again and again

Lets say the maximum investment for a regular saver was £100 per month.
End of year one
Bond person has £1260, saver person has £1267
The both put it into a bond at 5%.
This month the bond person also puts another £100 in bonds, the saver person puts it into regular savings.
Year 2 ends up with the same position for that years savings, but the person who invested in regular savings in year 1 has a higher capital and earns more from their 1 year bond the person who started in bonds.

Riddle me this one Dan.
1/1/24 you had £100 you could invest in bonds at 5% or regular savings at 7%.
Unfortunately you can make no more deposits in the year as you had no more spare cash.
Your bond would return you £105 does the regular saver return you a) £103.5 or b) £107?
 
danlightbulb said:
If I'm wrong I'll happily say it, but mkw's example is comparing an investment that is complete after a year with one that is only halfway through after a year, so it's not complete.
Click to expand...

But you have to compare like for like. Otherwise there are too many variables
 
413x said:
Sometimes, you just have to say you were wrong.

Regular savers are quite easy roughly.
You can just use the total. After month 12 and (roughly) half the headline rate will be your annual rate.

Ie. If it's 7pc, then 3.5 works well.
Click to expand...

This is the advice generally in order to calculate the correct interest and why people get confused and think the rate is only half.
You can do exactly the same calculation by adjusting the capital.
Eg you pay in £100 a month
Interest after a year at 7% = 7% x 1200 x 0.5 which can be abbreviated as either 7/2% x 1200, or 7% x 1200/2
 
200sols said:
Are you guys really arguing if 7 is higher than 5?
Click to expand...
No we're not.

Mkw is picking semantics at me because Im using 3.5% as the interest rate instead of using 7% and halving the capital, which is the same result either way.

And still hasn't run the full calc which means he is only taking account of half the 5% bond returns but the full returns of the reg saver. Also he is putting the reg saver returns after a year into a 4% easy access but not doing the same thing with the bond maturity returns.

Id do it properly myself but I'm away and can't access a computer. If I'm wrong I'm wrong but I don't think I am.

Also I suspect the outcome will be sensitive to the follow on interest rate (4% assumed here). Is that realistic from savings ISA accounts I don't know without looking.
 
tamzzy said:
actually you will find that his numbers already adjusts for this. :)
Click to expand...

I don't think it does, his table only showed the bond average over 12 months but there are more 5% returns to come after that whereas the reg saver amount has now been put into a 4% easy access in bulk.

His analysis is only showing the first year of returns essentially where the reg saver has matured but the bonds have not fully.
 
danlightbulb said:
No we're not.

Mkw is picking semantics at me because Im using 3.5% as the interest rate instead of using 7% and halving the capital, which is the same result either way.

And still hasn't run the full calc which means he is only taking account of half the 5% bond returns but the full returns of the reg saver. Also he is putting the reg saver returns after a year into a 4% easy access but not doing the same thing with the bond maturity returns.

Id do it properly myself but I'm away and can't access a computer. If I'm wrong I'm wrong but I don't think I am.

Also I suspect the outcome will be sensitive to the follow on interest rate (4% assumed here). Is that realistic from savings ISA accounts I don't know without looking.
Click to expand...
7 Is always higher than 5. Except of course when 5 is higher than 7.
 
tamzzy said:
that's low tbh, 5% would be what i'd use as my calculation (my cash ISA is 5.45%, my S+S running at 9%+)
Click to expand...

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.

tamzzy said:
@danlightbulb just out of interest, where do you find government bonds that pay 5%?
Click to expand...

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.
 
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danlightbulb said:
No we're not.

Mkw is picking semantics at me because Im using 3.5% as the interest rate instead of using 7% and halving the capital, which is the same result either way.

And still hasn't run the full calc which means he is only taking account of half the 5% bond returns but the full returns of the reg saver. Also he is putting the reg saver returns after a year into a 4% easy access but not doing the same thing with the bond maturity returns.

Id do it properly myself but I'm away and can't access a computer. If I'm wrong I'm wrong but I don't think I am.

Also I suspect the outcome will be sensitive to the follow on interest rate (4% assumed here). Is that realistic from savings ISA accounts I don't know without looking.
Click to expand...

You wouldn't put them in a 4% instant saver though, you would either put them back into a regular saver (more than one is available), or like I said you could just use your higher amount to buy bonds then.

Simply as someone said you cannot compare fixed term with flexible term as its basically causing you to make assumptions.

Of course the folllow on rate is sensitive.
If instead of 4% what if the regular saver was 6% and the instance access 5%.

I have an instant access now thats over 5% fwiw.
Its the relative rates that are important, and you have no way of knowing what they would be.

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...

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.
 
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