Drip-feeding is it really worth the hassle or the Return?

I realise with on-line banking transferring money, setting up S/O’s, DD’s and opening new a/c’s doesn’t take a lot of time anymore. But how much extra money do you really make if you drip-feed rather than leaving a lump-sum in a high interest deposit a/c?

I urge someone to calculate (in spreadsheet form) the extra possible return available for drip-feeding in 2008.

Considerations for the calculations:
· You have the funds to make maximum contributions to each reg. saver a/c (maybe €100,000).
· You’re signed up to Anglo 7% (1,000), Anglo 8% (1,000), INBS 7.35% (1,000), FA 7.15% (1,000), AIB 7.3% (300), Halifax 7% (350), BOI 7% (500).
· All a/c’s stay open for 2008 & all rates stay unchanged for the period.
· Ignore Halifax may possibly reduce/increase/close next month.
· BOI Easysaver will drop to 3% when you reach 5,000 – so you’ll have to move money back to your 5% in Nov. & Dec.
· You continue with 12 monthly max contributions to all a/c’s open on 1/1/08.
· You apply the max monthly contributions available for all accounts that opened during 2008.
· You’re drip feeding from a high rate 5% deposit a/c.
· You’re using a clearing a/c to transfer funds from 5% a/c to reg. saver a/c’s and you’ve set up a S/O or a DD for each reg. saver a/c.
· You transfer 1 single amount on the 1st of each month from high interest a/c to clearing a/c(total possible contributions for that month)
· Using this clearing a/c means you lose 5 days of possible interest a month (i.e the time it takes to transfer money from 5% a/c to 7%+reg. save a/c)

Is there any mathematician out there?

These calculations are approximate but good enough to illustrate how much you'd earn.

Set-up just like you state it (except for the BOI complication) if you moved €5150 per month from a lump sum account (at 5%) to multiple RegSav accounts (average 7%) you'd earn on just the money transferred that month an extra gross €7 = 5150 * (7% - 5%) * (25/365). In subsequent months you'd earn an extra €8.40 on that €5,150. This is illustrated in the first row of numbers below. The gains from the second payment of €5150 corresponds to the second row and so on.

So over the course of 12 months the gains you'd be making as you transferred out of the lump sum account and into the reg savers are

7 + 8.4 + 8.4 + 8.4 + 8.4 + 8.4 + 8.4 + 8.4 + 8.4 + 8.4 + 8.4 + 8.4
0 + 7 + 8.4 + 8.4 + 8.4 + 8.4 + 8.4 + 8.4 + 8.4 + 8.4 + 8.4 + 8.4
0 + 0 + 7 + 8.4 + 8.4 + 8.4 + 8.4 + 8.4 + 8.4 + 8.4 + 8.4 + 8.4
.
.
.
0 + 0 + 0 + 0 + 0 + 0 + 0 + 0 + 0 + 0 + 0 + 7

Here's the fun bit. Using the formula for the sum of the first N integers N*(N+1)/2 (derived in hon LC maths course when I did it) on the triangle of numbers that is above the diagonal (reveal the pattern by dividing across by 8.4 to and summing each row of the triangle of integers) this totals to

Profit = 7 * 12 + 8.4 * [11*(11+1)/2]
= 84 + 8.4 * 66
= €638 gross or €510 after DIRT

The gain that could be made over the remaining 6 months of 2008 is = 7 * 6 + 8.4 * [5*(5+1)/2] * 0.8 = 42 + 8.4 * 15 * 0.8 = €134 after DIRT.

In the initial 12 months for each €1000 drip fed per month you earn a final at year end extra €100 interest after DIRT. If the difference in interest rates between the regular savers and the lump sum is maintained for more then 12 months your gains will increase (cells with zeros in them above will have a positive number in them). The annual gain over months 13 - 24 for the payments made in the first 12 months (if reg sav rates last that long) would be twice as much.

So there is a theoretical gain but it's a lot of work to set-up and you'd need about €62k in the lump sum account initially to maximise the gains over the 12 month period.

I think your better off leaving it all in the highest rate for lump sums. I mean I opened an Irishnationwide 7.35% and was going to drip feed it from my AIB current account. But now I hear there is an 8% account with Anglo. So I need to cancel the IN account and open the Anglo. I also have an 7.15% First Active account. If i keep at it ill have bits of money in loads of accounts.

Im only juggling €10,000. but ive a good mind to just lump it all in to one lump sum account.

Thanks for your great explanation/analysis GeneralZod.
(And to think the LC Maths syllabus has more use other than to study for your A1 and your 100 points for the CAO!)