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Help review this "high interest" online savings account? 4% daily?!
Deusfaux
Registered User regular
Registered User regular
I'm figuring there must be a catch here or I'm not understand things so maybe you guys can take a look
http://www.rbcroyalbank.com/RBC:RkkSQY71JsUAAg182-Q/products/deposits/e-savings.html
It's a brand new account type so I was sent info about it but it appears to good to be true
-no annual fee
-no fees for transferring between your accounts online - WHICH is also done instantaneously
-fees for directly debiting from the account - whether at an ATM or point of purchase
this is what gets me
4% interest....(which yes goes down to 3.25 after the introductory period) compare to say the 0.3% interest I am getting in another account currently
...but calculated daily? Does this mean to say if I had $100 in this account, I would be making upwards of $4 a day?!
Please sort this out for me or find the catch.
http://www.rbcroyalbank.com/RBC:RkkSQY71JsUAAg182-Q/products/deposits/e-savings.html
It's a brand new account type so I was sent info about it but it appears to good to be true
-no annual fee
-no fees for transferring between your accounts online - WHICH is also done instantaneously
-fees for directly debiting from the account - whether at an ATM or point of purchase
this is what gets me
4% interest....(which yes goes down to 3.25 after the introductory period) compare to say the 0.3% interest I am getting in another account currently
...but calculated daily? Does this mean to say if I had $100 in this account, I would be making upwards of $4 a day?!
Please sort this out for me or find the catch.
Deusfaux on
0
Posts
In the relevant footnote it says "Interest calculated daily (paid monthly)." I'm guessing that means the rate of interest varies day by day, and you.. get an average over the month? It's strange.
Also, lol at the fees. North American banks are rubbish.
So using your $100 example, after the first day, you'd get $100*0.0013 = $0.13. On the second day, your interest would then be $100.13*0.0013 = 0.0013 again. It goes on like this.
Non-convoluted: 4% monthly interest which is compounded daily.
Which works out better than having it done all at once at the end of the month.
EDIT: Now that I think about it, it doesn't make much sense to compound daily but pay monthly. I think the interest will be compounded monthly as well. So, if you invest $100 on January 1st and then do nothing, you'll have 100 + (0.04 / 365) * 100 * 31 = $100.33, if the bank rounds the fraction of a cent down. Not a huge difference. The calculated daily part means, if you invested another $100 on January 21, then on February 1st you'd have 200 + (0.04 / 365) * 100 * 20 + (0.04 / 365) * 200 * 11 = $200.46.
TBH, you can do better than 4% interest, or at least, I should hope so.
The formula for compound interest is A=P(1+r/n)^n, where A is the total, P is the principal, r is the interest rate, and n is the number of periods per year. So, for interest compounded daily, the formula is A=P(1+r/n)^n.
In the case of $10,000 of principal at 4% interest, you'd have:
A=10,000(1+.04/365)^365
A=10,000(1+.00010958)^365
A=10,000(1.040808)
A=10,408.08
So, 4% compounded daily is a 4.0808% interest rate, instead of the 4% you'd get with an interest rate compounded annually. On $100, this is going to make a difference of $.08 a year.
In reality, I don't know of any banks that add interest to an account once a month based on the amount on that day. They all do averaging or daily calculations so that the amount of interest you earn is based on the amount of money you have over the course of the month, rather than more basic (and stupid) calculations based on a one-time snapshot or an average over start and end dates. That's also why it's smart to at least have a large amount of money hit a savings account of some sort if you're going to hold on to it for more than a day, simply because you'll earn interest on it even if it's only in the account for, say, a week.
I just checked ING Direct's Orange Savings Account, and they've got an APY (Annual Percentage Yield) of 4.5%. Which means, after taking the compounding effect into account, their annual rate is 4.5%, versus the 4.0808% of the bank Deusfaux linked.
RBC is one of the "big 5" banks in Canada if anyone was curious. This IS their best rate for a savings account as far as I can see looking at a chart a teller gave me in person - next highest is 3% and they all sorts of stipulations this one does not.
and I was JUST going to ask what might be a better option for investments at that...
should that be another thread or .... I'm not sure? I have a large wack of capital, apart from what I have at the bank in these savings accounts, that I don't need to be particularly liquid so I am definitely interested in my options
If you think you don't need it for a year, a CD is a good way to go. If you think you won't need it for five years, a conservative mutual fund or index fund will probably be better for you. If you think you won't need it for forty years, you want an aggressive-growth fund, something like a small-capital mutual fund.
In my experience, it's only Canadian banks that still charge fees for things like using your debit card.
The only fees my bank (in America) charges me are overdrafts and to buy books of checks. They don't charge me a fee for using another bank's ATM.
http://www.thelostworlds.net/
the idea is you transfer the bulk of your money (online) into it for growth, and when you need some more on your chequeing account (the one tied to your debit card) you transfer some over (online)
but maybe Canada is behind anyways
Thanatos what's a CD
As for what a CD is: wiki.
Basically, in exchange for giving your money to the bank for a pre-determined amount of time (anywhere from 6 months to 5 years), you get a marginally higher % annual yield (the longer you agree not to use the money, the higher % advantage you get.) If you have money you know you won't use, but can't afford to risk, it's a safe and low-hassle way to get a few extra bucks out of your interest.
It's not going to be a big jump from a savings account (I think ING Direct is giving you 5.25% on a 9-month CD right now), but It's a bit better than their Orange Savings.
http://www.capitalone.com/directbanking/
Edit: Also, if you have a large whack of capital, try to do some research into your investments and also see a financial adviser. You'll do yourself a disservice if you just dump this large whack into savings or a CD.
a way of saying no small amount without divulging private financial information to strangers on the internet?
I get 6% p.a. (calculated daily, paid monthly) on my NetBank Saver with the Commonwealth Bank of Australia, and there's no fees on that account whatsoever (there is on my day-to-day account). It's an online account, though.
I just opened an account with them last week and so far I've had nothing but good experiences. I opened both a Orange Savings and Electric Orange account (4.00% APY but you get a MasterCard Debit card, paperless checking account basically). Keep large amounts in the savings account, transfer smaller amounts to the Electric Orange for daily spending.
Same deal as your Canadian bank. No minimums, no fees, etc. The only fees you can incur are if you want to send a paper check to someone overnight, or start dipping into your overdraft line of credit on the debit card. I believe they charge 12.25% on that, but if you keep track of it there's no reason to go over. Starting line of credit isn't much anyway, think I have $165.00 in overdraft.
You may want to check them out, they probably have similar rates for Canada.
edit:
Forgot to mention, the only "catch" here is that they're an online bank only. No branches, no check book, and no mailed statements for Electric Orange (though you can get them with the regular savings account). You need to have an account (checking, savings) with another bank already to link to the Orange account. This low overhead is why they are able to offer such high interest rates though.
I get 6% on my BankSA (St George) internet savings as well, but let's not go into the dynamics of interest rates across different countries/economies here.
OP has been answered already, but yes, interest calculated daily, compounded/paid monthly. So every day you will earn 1/365th of your interest on that account, and that is compounded and added to your account at the end of the month. Think those are the right terms to use...
http://newnations.bandcamp.com
A=P(1+r/n)^(nt)
where P is the principal, r is the yearly interest rate, n is the number of times compounded per year (so, for the OP it would be 365) and t is the number of years.
IOS Game Center ID: Isotope-X
Off-topic, but ING Direct actually does have a couple branches, which cleverly enough are also coffee shops. They're opening one in Chicago soon, which I'm looking forward to.
EDIT: No brick-and-mortar in Canada though, to my knowledge.
I forgot about those, though they're not branches in the traditional sense, they just offer printed material on their products and quicker account openings (for instance I had to fax my SS card to ING when opening an account online, could have just showed it to them in person). You still need an account at a "real" bank to open a Savings or Electric Orange account.