If you started with a 5" square and trying to get 3 1/2" squares your method will not work. I tried several different fabrics and taking a 5" square and sewing all around then cutting the way you said will give you 3 1/4" squares which will throw off everything else.
If you don't like sewing HSTs you should try "Triangulations" CD. It has HSTs and HQTs in a lot of different sizes and they come out perfect everytime.
Carmen