Put £1,000 into ISA or savings account?

Aaagh

I have been paid for some overtime I did over the year and have around £1,000 on top of my usual in my current account (First Direct).

What is the best thing to do with it? I have an Egg ISA and am nowhere near the limit and also an Alliance and Leicester Savings account currently with nothing in it. The savings account will be higher interest but obviously I'll be taxed on it.

I won't need access to the money in the near future, although we are thinking of doing a little bit of decorating/putting doors in next year. We may be able to cover this without dipping into this money but might need to.

Lokolo

A cash ISA is a type of savings account where you get tax free interest. If you are a taxpyaer any interest earnt from a normal savings account will be taxed, whereas won't be in a cash ISA.

So Cash ISA

Aaagh

Thanks. I sumitted my post before finishing it, but looks like the ISA will be my best bet then.

If I do take some of the money out before April will I not gain any interest on it? Sorry if this is a stupid question.

jem16

Aaagh wrote: »

If I do take some of the money out before April will I not gain any interest on it? Sorry if this is a stupid question.

Interest is usually calculated daily but marked up either monthly or annually. You will still get the interest for the time it's in the account.

Aaagh

Thanks Jem16, I was confused when I checked on line as it appears not to have gained any interest, butI guess I'll get it in April. I wasn't sure whether I needed to keep it in for the whole year.

Will wait until after the sales so that I can treat myself a little and then will transfer some money into the ISA.

Lokolo

Interest is calculated daily but can be applied either monthly or annually. Egg do it annually on the date you opened the thingy. Basically the interest gained is invisible until the date.

If you close it you will get interest upto that date.

flossy_splodge

To be absolutely accurate you need to compare what rate the ISA gives you, tax free, and what the NET rate you would get from a different savings account and then decide.
Its not impossible to get a rate outside the ISA wrapper that even after tax is better than a tax free product.
Have you checked all the current ISA rates and which ones have dropped yet?
I think there's a bit more work here to get the absolute best deal.

natman

flossy_splodge wrote: »

To be absolutely accurate you need to compare what rate the ISA gives you, tax free, and what the NET rate you would get from a different savings account and then decide.
Its not impossible to get a rate outside the ISA wrapper that even after tax is better than a tax free product.
Have you checked all the current ISA rates and which ones have dropped yet?
I think there's a bit more work here to get the absolute best deal.

I AGREE.
At present it is quite difficult to compare products as the base rates have come down so SOME banks have alread changed their products, others are waiting until January, so its not exactly a level playing field -
nevertheless, looking at current ISA deals on say something like -

http://www.moneysupermarket.com/savings/compareresults.aspx?enquiryId=2012205

or Kazza's ISA Thread - its updated pretty regulary -http://forums.moneysavingexpert.com/showthread.html?t=401374

You can also try looing at fixed term accounts - where you put a set amount of money away for about 12 months and get a guarantee return -
http://www.moneysupermarket.com/savings/compareresults.aspx?enquiryId=2012406

An account I have liked for -
1 easy access and 2 decent rate is ICICI Bank hisave easy access account - currently offering 4.5% before tax which is 3.6% after tax...........

The most important thing to think about is how easy do you need your money, can you afford to tie it up. ISA's are great for a little bit longer thinking due to tax free compound interest - i.e after say 3 - 5 years you will hopefully of added to your tax free savings and say have £5000 at a better rate of say 6%, if you dont put your money in an ISA now you can never rewind to a previous tax year and add it in.

Swings and roundabouts -
Check the interest rates of all accounts, not just the current ISA and saving account you have.
Good luck~!~

Sam37

With the present low rates, I'd personally wait till late March putting anything (more) into an ISA -unless perhaps you'd want to go for fixed rate-. If you'd need to take anything out before that date, you can't ''put it back''.

The difference in interest between tax free and taxed is likely to be quite small at the moment.

LongTermLurker

As some of the later posts have said, the rate is important - look to see what the best 3 month Fixed Term Deposit is, subtract 22% and compare that with the ISA rate. If you deposit on 2 Jan you'll be able to put the whole lot into your 2008 (current) ISA, but make sure it's in your ISA by 5 April so you don't lose this year's allowance.