Which is best for me? Natwest E-savings Vs. ISA

richardsimkiss

I'm looking to open an account in which i can save money...

I need it to be accessible online and I need to be able to move money fast... (I don't want to have to wait ages to swap funds through accounts) I will be depositing small amounts each month and then my student loan, and will transfer funds to my current account as and when it's needed.

I'm aware of the benefits of ISA's being tax free and having a higher interest rate, but what are they like to deal with? do they act just like another current account but with a limit on what you can deposit?? Natwest says instant access with its mini cash ISA, does that mean instant, or 3/4 days like a current account?

the E-saver account i like the idea of, i can transfer funds between my accounts online in realtime, no waiting around, and that definately appeals to me.


So really my question is, will I lose out on much if i were to go for the e-savings account over an ISA?

rates on the natwest site state:
E-savings: 4.2% AER, 4.12% GROSS
mini cash ISA: 4.59% AER, 4.5% GROSS

any help/advice would be much appreciated.

innovate

If you haven't yet done it, read through Martin's articles on Savings

If you need to regularly withdraw money from your savings account, an ISA might not be your best choice - though if your objective is to save, then an ISA should always be your first choice.

In any case, though, you can get better rates than the Natwest ones with other e-savers, especially the online ones.

Do you also have your current account with Natwest? If so, might be worth considering changing this as well to a high-interest paying current account - again, see Martin's article on the subject for more.

grumbler

richardsimkiss wrote:

...So really my question is, will I lose out on much if i were to go for the e-savings account over an ISA?...

The answer depends on two factors:

• whether you are a taxpayer
• the amount you are going to keep on the acount

For £3000 balance during a year you lose:

• £11.70 if you are not a taxpayer,
• £24.30 if you pay 10% tax,
• £36.90 if you pay 20% tax on savings interst.

richardsimkiss

i'm not currently paying any tax (i assume you mean income tax), being a student I only work part time and only earn £3.5k pa.

My theory is that I only want a savings account to deposit available funds into while i'm not using them, rather than have them sitting there doing nothing. I am banking with natwest, but have a student account. I have an interest free overdraft so i'm thinking i could run my overdraft to it's maximum putting all my available interest free credit into a savings account to try and make some money taking money out of my savings whenever needed... this is why i'd need to withdraw regularly...

So it's not actually 'savings' but making the most of the available credit I have...

grumbler

richardsimkiss wrote:

i'm not currently paying any tax ...

In this case you should submit R85 form to the bank to have all interest paid gross on all accounts besides ISA ...

richardsimkiss

Thanks for that! i'd never have known if you had told me!

have had a look at online savings accounts with better interest rates and several say "(No interest paid in a month when a withdrawal is made)",

now although this sounds basic, i'm confused, does this mean to say if I had say £3000 in one of these savings accounts and withdrew £100, then i wouldn't recieve ANY interest for that month?

all help thus far is greatly appreciated btw...

grumbler

richardsimkiss wrote:

...have had a look at online savings accounts with better interest rates and several say "(No interest paid in a month when a withdrawal is made)",

now although this sounds basic, i'm confused, does this mean to say if I had say £3000 in one of these savings accounts and withdrew £100, then i wouldn't recieve ANY interest for that month?...

I think you mean FD. Yes, despite good rate this account is not suitable for regular withdrawals ...

missile

As a non tax payer, ISA is not for you. Invest in a high interest account - request interest tax free. The rates change and the "best" varies daily, but IMHO it is more trouble than it is worth to keep changing unless you have a lot invested. Some on line sites are far easier than others to use. I have accounts with Cahoot and Nationwide, both offer cheque book, credit and debit card, so it is very easy to get your cash as and when you need it.

innovate

missile wrote:

As a non tax payer, ISA is not for you.

Yes and no - - you need to also look at your future.

If you are a non-tax payer now, but will be a tax payer in a year or two, taking out an ISA now might be a smart move because the tax-free status will be retained in subsequent years, and you will be able to add, tax-free, to the ISA (or open additional tax-free ISAs). That's valid until 2010 under current legislation.

missile

Valid point innovate, but better interest rates are available to him now and this would be tax free for him. IMHO a good internet account would be the best option for him.

Building up ISA portfolio could generate tax free income in future years but is this relevant, given he is looking for a (short term?)home to gain interest on his student loan. I sincerely hope he finds a good job on completion of his studies, but it seems unlikely that he will becomes a high rate tax payer any time soon.

innovate

I don't know the exact circumstances, so wouldn't want to take a firm position (and it's everybody's own decision, anyway), but....

Given that you can withdraw money from an ISA if needed (though not top up again in the same tax year), putting the money into a mini cash ISA is as risk-free, and as interest-earning [if not more], as putting it into a tax-exempt savings account(*). Having the ISA in place once, you can then make use of it in years to come.

You can still also open a savings account in parallel - most of them just require a £1 opening balance.

(*) A Regular Saver, fed from a high-interest earning savings account would, however, pay the most tax-free interest (max achievable is around 7.5% at present), so this might be an option if the pre-requisities can be met. But to reap the full benefits, there shouldn't be any withdrawals for 12 months.