Savings Interest & Confused

zom247

zom247

zom247

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My CSE Maths is not cutting the mustard and I'm having trouble understanding the interest from a savings account I have.

It's a 12 month Regular Savings Account with First Direct with a rate of 7% AER/Gross. I've been saving £300 per month (the max) for 12 months with no withdrawals. Got the paperwork for it today and it only shows interest of £136.64. However, I calculate 7% of £3600 as £252. Am I being totally thick? I just don't understand their working out.

Grateful for all sarcastic comments :)
 
Dis86 said:
Interest probs calculated monthly and you had lesser amounts in until you reached the full 3600.
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Thanks, just found the paperwork from when I opened it and it says interest is fixed, calculated daily and credited at the end of the 12 month fixed term.

Still none the wiser though, perhaps this was why I never did pay & allowances when I was in the Army :)
 
zom247 said:
Thanks, just found the paperwork from when I opened it and it says interest is fixed, calculated daily and credited at the end of the 12 month fixed term.

Still none the wiser though, perhaps this was why I never did pay & allowances when I was in the Army :)
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on month 1 you had 300 quid, so 7% of 300
on month 2, you had 600 quid, 7% of 600
on month 3, you had 900 quid, so 7% of 900
 
The interest on £300 held for 1 day in a 7% AER account is:
(£300 * 0.07) / 365 days = £0.0575342465753425

If for simplicity we assume 1 month is 30 days:
30 x £0.0575342465753425 = £1.726027397260274

You held £300 for:
12 months
+ 11 months
+ 10 months
+ 9 months
+ 8 months
+ 7 months
+ 6 months
+ 5 months
+ 4 months
+ 3 months
+ 2 months
+ 1 month
= 78 months

£1.726027397260274 x 78 = £134.6301369863014

They said £136.64

Near enough.
 
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zom247 said:
That doesn't add up either, were you in the same school as me?
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7% AER not 7% of the value itself............c'mon man.

There is a calc here:
www.moneysavingexpert.com

Regular Savings Calculator – MoneySavingExpert

Work out what you’ll earn in interest from a regular savings account with this calculator from MoneySavingExpert. Options for monthly savings or to drip-feed a large sum.
www.moneysavingexpert.com www.moneysavingexpert.com

You only had £3600 in the account for the final month.
 
zom247 said:
That doesn't add up either, were you in the same school as me?
Click to expand...

It doesn't add up because it's calculated daily, so the length of the months and the day you deposited makes a difference.

7% AER means that had you £3600 in your account on day one, you'd have £252 in interest at the end of the year. You didn't, you had a gradually increasing amount.
 
Mr Jack said:
It doesn't add up because it's calculated daily, so the length of the months and the day you deposited makes a difference.

7% AER means that had you £3600 in your account on day one, you'd have £252 in interest at the end of the year. You didn't, you had a gradually increasing amount.
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Thanks for all the help/answers but this explains it better to me. I naively thought the 7% would be calculated from the £3600 in my savings at the end, still better than previous interest rates though.
 
zom247 said:
Grateful for all sarcastic comments :)
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If only you read what you signed up for :D

Literally the first line under the headline on the FD site.
Interest example: If you save £300 every month for 12 months and qualify for the 7.00% AER/Gross p.a. interest rate, you'll earn approximately £136.50 interest (gross). Interest is calculated daily and paid 12 months after you opened the account. Sole accounts only and one account per person at one time.
Click to expand...
 
It's easy with these to get a rough idea. Just divide the total (3600) by 2 and multiply that by the rate.

Its close enough to give you an idea.

Because it was 300 on day 1 and 3600 on day 365.

So it'll be a tad under (the result you get from the calculator) as you start with 300. But it's near enough for working it out

I think of it as.. Roughly.. Over the course it was half full. Hence the divide by 2..
 
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I made a spreadsheet for this today to work out how much more interest you earn from opening up a regular saver near the end of the month rather than the start.

For the Natwest 8% £250pm account it was about £15 more. For first direct this doesn't work as they restrict you to adding money on the same day of the month as the account opening.
 
So the key thing is just combining it with an account that lets you deposit more and then drip-feeding it to the regular saver. e.g. you have £10k in a standard savings account paying 4% and then pay £300 every month into the regular saver. Works out better than just leaving it at 4% the whole year.
 
HangTime said:
So the key thing is just combining it with an account that lets you deposit more and then drip-feeding it to the regular saver. e.g. you have £10k in a standard savings account paying 4% and then pay £300 every month into the regular saver. Works out better than just leaving it at 4% the whole year.
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I just pay it from my salary, essentially I am saving money I don't have yet so the monthly limit is a much smaller factor.
 
Such a surprise to come across one of these threads and not find some moron claiming that you only get half of the interest rate advertised
 
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