It’s Archna here from the editorial team. I thought I’d jump on and explain our thinking.
First of all the 1.25% is significantly higher than the easy access savings available right now.
As Laura mentioned above there are two plans you can sign up to with Chip - the free one which pays you 1.25% on anything up to £2,000 and the one that costs £1.50/mth which pays 1.25% on balances up to £5,000. (When you sign up to Chip you’re automatically put on the paid plan, though charges only kick in after you’ve auto saved £100 and you can downgrade in the settings).
If you saved £2,000 you would earn £25 across the year (based on 1.25% interest)
If you saved £5,000 you would earn £62.5 across the year (based on 1.25% interest)
But in order to earn 1.25% on a balance of £5,000 you have to pay £1.50/mth or £18 across the year, so you’re gain becomes £44.50 when you factor in the fees.
So we’ve calculated that the sweet spot in terms of deciding whether to pay for Chip + or not is if you have above £3,575 to save. If you have this amount or more the extra interest you’d get with Chip vs a different account (at say 0.5%) even after you factor in the fee would be more than you’d get elsewhere.
If you have between £2,000 and £3,575, you would be better off using Chip for the first £2,000 (for free) and then using another savings account for anything up to £3,575. Given where savings rates are and because Chip is so much better than what’s out there, this would be the geekiest way to maximise interest.
Does that help?