Stocks and Shares ISA or Guaranteed 8% YoY?

[kelbren]

@jewelz613 4% of £25k is £1,000.
8% of sweet f’all is £0.

Unless you are likely to blow it all in the casino or illicit substances. Keep control of it yourself.

 

[resjudicata]

@jewelz613 And if that person dies, what happens to the money? If you die will your beneficiaries know of the money the other person has?

Sounds messy. I'd say get control of it all.

 

[batterydave]

@jewelz613 Your relative is lying to you and gaslighting you. Why is there no option for you to receive your own money in this list?

Take all the money and manage it yourself. Use a financial adviser if you don't feel comfortable with some passive stocks and shares ISAs

 

[daisychainlove]

@jewelz613 There is no such thing as a guaranteed 8% yield unless the BoE/Fed etc were to raise rates to 8%

 

[heartnsoul19]

@daisychainlove Nationwide currently paying 8% on £200/month tbf, so it does happen but yeah you're not going to find those rates anywhere you can plonk a considerable sum.

 

[jaaye]

@heartnsoul19 Sadly its not 8% anymore unless you already have the saver account. Open one now (like I did a few days ago) and it's 6.5%. Still good tbh but sad I missed on the extra points

 

[sabin]

@heartnsoul19 It's not really 8% after the first £200 pounds, assuming you put 200 in the first day you open the account.

 

[heartnsoul19]

@sabin Depends how you look at it but yeah I take your point.

 

[takecare8990]

@sabin It is 8% aer. That doesn't change, whether you have the rate for 1 month or 100 years.

 

[sabin]

@takecare8990 8% for a year tho not forever lmao, on the second installment of 200 pounds is already less than 8% on the total 400 as it's 11 months/12 left etc.. the total after a year assuming you max it out is around 4.3% of equivalent total interest

 

[a71]

@sabin Yeah, exactly this, basic maths...!

 

[sabin]

@a71 Not sure if it's sarcasm but it's a very simple interest income calculation. If you don't wanna do the maths you get a max of £103 from what NatWest says on the website and that's on a total of £2400 (if you max it for the 12 months) that's around 4.3% interest appreciation over a year...sure we can call it "8%" if it makes people feel better but in practice it really isn't unless you only want to put £200 on day one and stop contributing just to say "hey I got 8%"

 

[a71]

@sabin Absolutely not sarcasm. I am a qualified accountant and head of commercial finance at a FTSE 100, and I wholly agree with everything you've said.

It is just basic maths but unfortunately not everyone gets it.

The amount of people that I have to explain this exact scenario to in personal life is crazy lol

 

[sabin]

@a71 My bad I wasn't sure as I had the conversation with other people before on reddit and they were so convinced I was wrong!

Glad I am not the only one seeing through this, although I also worked in accounting (not qualified) within audit data analytics and this sort of recalculation was part of our bread and butter, but as you said it's basic maths!

Maybe we need more personal finance lessons in school as many people fall for this stuff (although it could be useful for some people with very little savings).

 

[takecare8990]

@sabin This account is literally useful to everyone. Even if you have £100k in savings, you'll still be better off using a regular saver AS WELL as your normal savings account. Because 8% > 5%.

The interest is calculated daily, not annually. So you earn 0.021% every day for the regular saver and only 0.013% for a normal savings account.

Whether your money is in there for 12 months, or 1 day, 0.021% > 0.013%.

People are not "falling for" anything, they are literally gaining money.

Keeping 2400 in an easy access will net you £120 after 12 months.

Starting with 2400 in an easy access and transfering 200 into the regular saver - you will earn £103 from the regular saver PLUS £65 from the easy access. Totalling £168 - more than the £120.

This. Is. So. Simple.

 

[takecare8990]

@sabin Obviously, you don't earn interest on money that isn't in the account, that's painfully obvious.

None of this changes that you are earning 8% AER on every single penny in the account, the entire time it's in there.

 

[sabin]

@takecare8990 Sure but you are limited to a 12 month time period (fixed period not forever) with a fixed maximum amount so you are effectively not.
Doesn't matter if it's times by 8% in the calculation if the 8% is then divided over less and less time remaining.

If you have £2400 to save today there are so many better accounts that at 4.5% offer a better return and more flexibility of withdrawal, you do you though.

If you like to think you are earning 8% sure be my guest but you are effectively not getting 8% on a 12 month period and you are earning 4.29% at the end of the year overall assuming you contribute equally every month.

The 8% suddenly becomes profitable for the bank with base interest rates of 5+% over a 12 months as long as you do what the account is designed to be used for. If not you can get a real 8% in the first 200 and stop contributing, that's as real as 8% you can get.

They wouldn't design those accounts to lose money on average so nope you are never effectively getting 8% with the way it's set up...

 

[takecare8990]

@sabin I don't think you know what AER is. The annual equivalent rate exists as a measure of how much interest you'd gain over a year of compounding.

This is used, as all sorts of different savings and investment vehicles have different time frames, with different fees and different calculation intervals. Trying to compare all of these in a meaningful way would be a nightmare without a standardised measure - hence the annual equivalent rate.

Which in this case is 8%! This is the figure anyone who knows what they're doing will use to calculate the best savings vehicle to use. Why? Because regardless of how many months are left, the money you put in will be earning 8% AER (much better than the 5% you'd get elsewhere). To give you the maths 58% better, every single day (which is usually how often interest is calculated).

If you have £2400 to save today there are so many better accounts that at 4.5% offer a better return and more flexibility of withdrawal, you do you though.

You're talking as if you put the £2400 in at the beginning and then earn 4.5% on that - you don't. You drip feed into the 8% from the 5% - earning 26% more than just leaving it in the 5%.

They wouldn't design those accounts to lose money on average

This is exactly what they are: loss leaders. That's why the deposits are capped. They're willing to take a hit on the small amount of deposits as a marketing tool to gain new customers.

 

[sabin]

@takecare8990 I know full well what it means, but again your maths is wrong. NatWest literally tells you if you max the 2400 you can get max £103 which is 4.3% I relate don't understand how much self convincing you got in you. £2400 lump sum in a 5% would beat it. The key is that it's fixed for 12 months it's not a variable interest account that lasts for many years...

Also you forget that you get a higher rate at 8% but the effective days are less and less after each month as it is fixed 1 year account... it's not hard to understand.

It has its us s by it's s not an account for everyone especially on financial subs where the average person prob is more focused on investing long term. If you can save 200 quid a month sure is good if you can save £2000 it's useless.

Also yes it may be a loss leader but depends if you fulfill the purpose of the account with an effective rate of interest paid out below the base rate then they make money.

With that said I don't have more time to waste, to each their own.

 

[takecare8990]

@sabin You literally just ignored everything I said.
The fact you brought up the 4.3%, as if that disproves the 8% aer shows you don't know what it is.

You're still ignoring the fact that you can put all £2400 into a 5% account, then transfer from that into the 8% account.

THEY'RE NOT PAYING LOWER THAN THE BASE RATE, THEY'RE PAYING 8% AER ON EVERYTHING IN THE ACCOUNT

I swear you must be trying to wind me up, you can't be this unintelligent