ISA's v non-isa for non taxpayer

elektra

Generally speaking why do easy access ISA's pay less than an Easy Access account for a non taxpayer.

e.g. have an Abbey Direct ISA paying 4% but as am non taxpayer can better rate in a non ISA account.

Been hanging onto the ISA in case I became I taxpayer going back to work but I think that is an unlikely scenario.

Maybe a fixed ISA is a 'middle' answer.

Lokolo

To be fair it depends where you go. My Egg ISA pays more than my instant access savings. Depends what the bank wants to do.

jennifernil

Yes, I have noticed this too. I have a fixed rate (6.5% till August 2009) savings account with HBOS, I am very tempted to dump the ISA as I do not pay tax, or if I did it would be the 10% savings rate. The best ISA I can get to transfer my Icesave one into pays 5.5% fixed for 1 year.

The variable rates are very low now.

Meatballs

You may become a tax payer in the future though (depending on your personal circumstances). When I was a student I would keep savings in the top paying account until just before the end of the year and then put the maximum in an ISA as I'm knew I would become a tax payer soon!

Milarky

elektra wrote: »

Generally speaking why do easy access ISA's pay less than an Easy Access account for a non taxpayer.

Because they can get away with it. Someone may argue that the 'paperwork' is costly with an ISA but that's a red herring. Basic rate taxpayers will still take up an ISA with a slightly lower gross rate because their 'net' rate is still slightly higher than otherwise. The banks are basically splitting the difference. As most people are basic rate taxpayers, this approach will always suceed.

jennifernil

Meatballs wrote: »

You may become a tax payer in the future though (depending on your personal circumstances). When I was a student I would keep savings in the top paying account until just before the end of the year and then put the maximum in an ISA as I'm knew I would become a tax payer soon!

That's a good plan, same as I used to do with our ISAs if we were not sure whether we would need the money during the year.

At the moment I have no income other than the savings interest, but I am soon to get a small pension (less than £50 p.w.) so that plus the interest may take me into tax in the future (depending on interest rates), but only till I hit 65 and get my age allowance.

So the quandry is, will 10% tax on my ordinary savings rate leave me more or less interest than the ISA rate ? :cool:

elektra

jennifernil wrote: »

Yes, I have noticed this too. I have a fixed rate (6.5% till August 2009) savings account with HBOS, I am very tempted to dump the ISA as I do not pay tax, or if I did it would be the 10% savings rate. The best ISA I can get to transfer my Icesave one into pays 5.5% fixed for 1 year.

The variable rates are very low now.

I wish I had done that. I don't think I realised until the last few days that you could get a fixed ISA.

hansi

I have this problem. I am 65 and am non working and a non-taxpayer. Together with my wife who will turn 65 in the next tax year, we curently hold a fixed rate ISA with Britannia which matures in April. In view of the current low interest rate I wondered if we'd be better off getting out of the ISA and putting into an instant access account as we will require access from time to time. Decisions, decisions!