ISA or Current Account

xyz123

hiI have a lumpsum of cash available. Normallly on 6th april i open an ISA and put all money into that....But i am wondering if i just open A&L current account (paying 6% interest fixed for one year) and just deposit £2500 into that. The condition is i have to pay in minimum £500 a month. I have some spare cash around so i can arrange for transfer of £500 into A&L account on 1st of every month and then withdraw the money on 5th of every month....This way i get a quite decent interest rate (4.8% net) on my account....Is there a catch? What happens if i have to close the current account a few months down the line. Do i have to have the A&L current account open for 12 months?....CheersJ

johncolescarr

No catch, and not an unreasonable consideration, many people on this website have also considered this. However, if you are thinking of squirrelling the money away for a while (more than 1 year) I would still use a cash ISA as interest rates are unlikely to stay low in the long term and by not filling up your tax free allowance, you cannot earn compound interest on the cash saved next year in your ISA in the future years to come. If you are going to save more £3,600 next year then using the A&L current account is a good option, even the best regular savings account also pay 6% and you cannot access your cash without penalty during the fixed term!