Should I fill up my ISA, or put it in regular savings?

norbie

Hi,

I have a variable ISA currently at 3.26% and as we all know this is only going to get lower and lower.

I also have a Barclays Regular Savings at 7.75% (6.2% after tax) for a 12 year period.

I have enough money now to fill up what's left of this year's £3,600 ISA limit (approx £2500).

Would I not make a lot more money by drip feeding it into the regular savings rather than putting in the ISA where it will earn 2-3% ?

SavingSteve

There are two things to consider;

first - using your ISA is better in the long run, as this $3,600 is tax free forever.

second - you only earn the high 7.75 once you have 'drip fed', i.e. your 12 month will only earn one month's worth of 7.75.

In short I'd fill up your ISA

Obukit

It depends on your plans for the future.

If you're dripfeeding £3,600 into regular savings you're probably going to achieve an interest rate of 4.7% net at the moment (4% gross regular saver + 7.75% gross regular saver). Your ISA is paying 3.26% net - so you'll lose almost 1.5% interest this year, potentially more if interest rates go down.

However, your ISA allowance is tax-free potentially forever, which means that if you don't use this year's allowance you'll have 20% tax to pay on wherever your savings end up after your regular saver. At the moment that's about 0.8%, so your ISA would become better value after two years, assuming interest rates remain the same.

In reality, I think interest rates will fall more, but then rise again. So if you're planning on using the money, e.g. for a house deposit, before then your regular saver makes more sense. If it's a long term saving, or if you're not sure, I'd go with the surety of the ISA.

Of course, no-one can predict interest rates and it's possible savings tax might be abolished altogether, so there's an element of risk whichever you decide to go with.

mickW_2

I have got £32k back from Icesave ISA via the FSA and stuck it all in a 7% bond with Close Bros. If the Tories come to power they will introduce no tax ion savings for all basic rate tax payers so thats only a year or so away. So my advice is get it into the highest rate account you can anf forget the ISA's. Close Bros are doing 5% bond for 2 years if you hurry.

norbie wrote: »

Hi,

I have a variable ISA currently at 3.26% and as we all know this is only going to get lower and lower.

I also have a Barclays Regular Savings at 7.75% (6.2% after tax) for a 12 year period.

I have enough money now to fill up what's left of this year's £3,600 ISA limit (approx £2500).

Would I not make a lot more money by drip feeding it into the regular savings rather than putting in the ISA where it will earn 2-3% ?

fullstop

mickW wrote: »

I have got £32k back from Icesave ISA via the FSA and stuck it all in a 7% bond with Close Bros. If the Tories come to power they will introduce no tax ion savings for all basic rate tax payers so thats only a year or so away. So my advice is get it into the highest rate account you can anf forget the ISA's. Close Bros are doing 5% bond for 2 years if you hurry.

Would not bet too much money on the Tories following through with that idea, there will be some excuse given for kicking it into touch, such as the state of public finances etc.

I'm not holding out much hope for any meaningful measures from AD in the budget either.

norbie

Thanks guys. The money I am saving will be going towards a mortgage in the future - around 2-3 years so I believe it would be best to get the most interest I can right now and not worry about tax free savings.