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The real rate of return from ‘high-interest’ accounts

Banks are currently offering accounts, where, in return for a monthly saving of £250, there is supposedly a yield of 8 per cent.

What the banks conveniently fail to point out clearly is that this rate only applies to the first month’s contribution. The rate applicable to the second contribution is, of course, 11/12ths of 8 per cent, namely 7.33 per cent, uniformly reducing to 1/12th of 8 per cent (0.67 per cent) in respect of the final contribution.

An account of this type would therefore produce £3,130 at the end of the 12-month period, which represents a real rate of 4.33 per cent.

Won’t it be wonderful for primary advisers when the RDR may have driven from the industry large numbers of firms of IFAs, who can currently point out to their clients the reality of something that at first sight appears so attractive?

Glynn Downton
Partner,
Professional Investment
Management Services,
Maidstone, Kent

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