KBC 3.5% regular saver interest in second++ years

Hi,
I have a NUK 4% regular saver maturing in few days and am going to start with KBC regular saver next, as you cant have more than one NUK saver, even back to back (see http://www.askaboutmoney.com/showthread.php?t=189367)

The KBC one has interest rate of

3.50% on €1 to €50,000 if you do not have a current account with KBC

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I understand how regular savers work for a fixed period of say 12 or 15 months, but how does the interest work on this one when it extends up to E50K max? Usually, the interest is calculated annually once and then the account is closed. So a one year regular saver would have:

(12/12) * 3.5% of first 1K
+ (11/12) * 3.5% of second 1K
...
+ (1/12) * 3.5% of last 1K
= Total annual interest ~= E226

So at end of year one there should be about E12, 226 in the account. However, when this extends into year two, how is the annual interest calculated? Does it pay interest on the E12, 226, as well as the 12 x 1K amounts deposited into account in year two, since the E12, 226 will be sitting in the account for the full 12 months of year two?

If so it seems ridiculously generous?! I feel I'm misunderstanding something.

Can anyone explain the interest calculations for years 2++?

Thanks

You are correct. On the 31st December the accumulated interest accrued so far is applied to the balance on the account. Therefore from the next day forward you are earning interest on your interest as well as your new deposits. DIRT will be payable on 31st December so your balance will actually only increase by around half of that 226.

This will continue every year until your balance hits 50K. Then the interest rate will drop to 2.55%

You would get the same return if you had a one year fixed account that reached maturity and you decided to roll it over for a second year and just added the interest to it.

It is nice to earn interest on your interest but when the entire years interest after DIRT is only about 133 the accumulated interest on that is not much really.

But what about the capital of 12K from year one? This is also going to be sitting in the account for all of year two....do I not get any interest on that?

In that scenario what is the point of leaving the E12, 226 (ignored DIRT) in the account in year two? Why wouldn't I just withdraw the E12K and put it in a 2% fixed term deposit account?

You get interest on both the capital and last years interest in year two.

So by that logic, the 12K capital from year one is in the account for all of year two, so in year two shouldn't get I interest of E12, 226 @ 3.5% = 427 (DIRT ignored) on year 1 capital and interest alone, before even talking about deposits in year two? Hence total interest in year two would be 427 (interest from year 1 capital) + 226 (interest on year two deposits) = 653?

If that's right IMO, thats a decent account.

You are correct you will earn 625 in year two and 1095 in year three. Providing you keep depositing 1K per month. Though at some point the interest rate may drop from 3.5 to something lower. It then might be worthwhile closing the account and moving the balance to a fixed account.

DMcL1971 said:

You are correct you will earn 625 in year two and 1095 in year three. Providing you keep depositing 1K per month. Though at some point the interest rate may drop from 3.5 to something lower. It then might be worthwhile closing the account and moving the balance to a fixed account.

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In that situation the best thing to do would be to keep the €50,000 in the account to accrue interest and start putting your €1,000 a month into a different regular saver account. Regular saver accounts usually have the best interest rates so having a large sum in one and keeping it there will more than likely be the best thing to do. Obviously keep an eye on other accounts (the best buys stickies are the way to go) and move your money if a better option comes about.

There are a few issues with that approach:
(1) You cannot let the balance go even a cent above 50k. The next interest rate tier applies on the whole balance not the marginal amount. Interest payments will push you above 50k.
(2) KBC force you to continue to make a monthly payment into the account. So you cannot leave the balance alone.

The best approach is to stop your 1k contributions at about 46k and change the monthly contributions down to 100 EUR. Carefully, watch the balance and ensure you keep a decent safe buffer in place so you never reach anything close to the 50k by making infrequent small withdrawals.

Not that this effects anyone yet, the product has only been on offer for circa 17 months, so nobody has anything close to 50k in the account.

(2) KBC force you to continue to make a monthly payment into the account. So you cannot leave the balance alone.

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I had the 3.5% regular saver up and running before the 4.5% accounts came on the market.
When I went in to open the 4.5% account I expected to have to close the 3.5% account and take the balance plus interest accrued out.
I was told the account could stay open, earning 3.5% on the money I had already saved. So that is what I have done.
I am slightly apprehensive about whether I will get the expected interest on Dec 31st, but am ready to fight my case if not, as it was the deputy manager of the office who advised me.

Interesting and strange.

It seems you have two regular saver accounts with KBC? Both single accounts and not joint accounts? The KBC T&C's state:

Only one single and one joint Regular Saver Account permitted per individual.

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Previous reports here, from others, who had the 3.5% account and asked to open a 4.5% account were told by KBC that they needed to close the 3.5% account first.

You have either got away with it or you will be penalised, with your interest payment, on 31 December.

Gervan said:

I had the 3.5% regular saver up and running before the 4.5% accounts came on the market.
When I went in to open the 4.5% account I expected to have to close the 3.5% account and take the balance plus interest accrued out.
I was told the account could stay open, earning 3.5% on the money I had already saved. So that is what I have done.
I am slightly apprehensive about whether I will get the expected interest on Dec 31st, but am ready to fight my case if not, as it was the deputy manager of the office who advised me.

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Gervan,

I tried that too, I was also told that the old Regular Saver account would stay open and that I could open a new Regular Saver account to get the 4.5%. However, I was told that the old regular saver account would change account type to a Standard Demand Deposit Account and would therefore no longer earn 3.5% but would instead only earn 0.75% (dropping to 0.5% in December) from that day.

Have a look at your accounts online and see if your old Regular Saver has changed type. It should state the account type and AER beside it on the main account screen. I would be very interested to see if they have allowed you to have two Regular Saver accounts.

I do hope this is not going to bring retribution on my head, but I have just checked the online screen and details of each account.
The 3.5% regular saver still says AER and Gross Return as 3.5%, interest rate 3.46%. interest paid annually.
As I say, we were guided through the process by a fairly senior branch official. I have done nothing underhand.

Sounds like you are on to a winner there. It doesn't comply with their terms and conditions but I think they will have to pay you even if they made a mistake.

It's not a joint account is it? Then you could have two of them.

Both in my name, yes. I just hope I haven't already said too much!