My money is in the wrong place - where should it be?

Cheetah2005

Hi there,

Due to a change in circumstances, my money is now in the wrong place.

Currently I am on a Fixed savers account with Abbey which gets me x% interest when the account matures after 13 months when I put in £250 a month. Currently just gone past the second month so there is now £500 in there. (So I only get the interest if I keep putting in £250 a month for 12 months)

What I now want is something where I can put in and take out money at free will and earn interest on it as the year goes on. So earn money on whatever is in there for whatever period it's in there (if that makes sense). Managed by online banking.

I heard about tax-free ISAs and wondered whether it was what I was after. I want my money to be 100% safe (no risk). I also read that you can only have up to £3600 in an ISA in a year.

My reason for saving is for university which I will go to in Sep/Oct this year. I am looking at saving around £500 a month (possibly more) until then. I will probably end up getting all the student loans due to the interest on them being so low (which is smart right?)

Let me know what you think I should do and what accounts I should be looking it.

Thanks.

KonkyWonky

I always like to put my first £3600 in an ISA but be aware that if you invest this amount and then withdraw money from that account during the year you cannot top it up at a later date. On top of that the interest rate the ISA pays is not normally fixed (although there are a few coming onto the market, in particular HBOS has one paying a guaranteed 3% AER although if interest rates increase you are stuck in at the lower rate.)

If you check Martin's ISA guide and Saving Accounts guide he lists the top performing accounts and what rates they are currently paying as well as any penalties you may incur for withdrawing money etc.

In general though you are probably looking at putting £3600 in an ISA and the remainder into a Regular Savings Account that gives instant access. Be aware that most internet savings accounts generally say instant access but in reality it can be 4 days before the funds are transferred to your current account (might not be an issue to you).

Cheetah2005

Is 3.6K the absolute maximum that can be in a cash ISA earning tax free interest?

What i mean is: say I put 3.6K in at the start of the financial year and it earns some interest in the first month....its only the first 3.6K out of the (3.6K + interest) that earns tax free interest and the rest gets taxed?

I am thinking of going with the Natwest e-ISA as I already have a Natwest account so the transfers should be easier.

Aegis

Cheetah2005 wrote: »

Is 3.6K the absolute maximum that can be in a cash ISA earning tax free interest?

What i mean is: say I put 3.6K in at the start of the financial year and it earns some interest in the first month....its only the first 3.6K out of the (3.6K + interest) that earns tax free interest and the rest gets taxed?

I am thinking of going with the Natwest e-ISA as I already have a Natwest account so the transfers should be easier.

The limit is on contributions by your each year, not on what the accumulated total inside the ISA grows into.

Cheetah2005

Aegis wrote: »

The limit is on contributions by your each year, not on what the accumulated total inside the ISA grows into.

So if I deposit 3.6K this year and it grows to 3.7K by next year and I then deposit another 3.6Kthat year does all 7.3K earn tax free interest?

Mikeyorks

Yes ... it does.

But if you're going to Uni later in 2009 .... and you want your savings 'available'? Then an ISA really isn't the best savings vehicle ..... it's intended to be 'long term' not 'easy access'.

Not sure if you have to fund the Abbey RS account with £250 / pm? Can't you reduce the monthly amount to £10 or £20? That way your exising £500 actually earns reasonable interest (first £250 gets 12 mths interest / next £250 just 11 mths interest .. etc) ...... and look for a reasonable rate 'easy access' to continue your monthly saving in?

jem16

Mikeyorks wrote: »

But if you're going to Uni later in 2009 .... and you want your savings 'available'? Then an ISA really isn't the best savings vehicle ..... it's intended to be 'long term' not 'easy access'.

I don't see any reason why it can't be used as a normal easy access savings account especially if it's your only savings account.

Yes if you have other savings then use them first to make a withdrawal but it would be daft to go for a taxable account just because you want easy access.

Cheetah2005

jem16 wrote: »

I don't see any reason why it can't be used as a normal easy access savings account especially if it's your only savings account.

Yes if you have other savings then use them first to make a withdrawal but it would be daft to go for a taxable account just because you want easy access.

That's what I thought too. Because withdrawals only affect that financial year right?

So if I use the ISA for 6 months then shut it down (or whatever).....a few years down the line I can just open a new one and still have the full 3.6k allowance...or is that wrong?

jem16

Cheetah2005 wrote: »

So if I use the ISA for 6 months then shut it down (or whatever).....a few years down the line I can just open a new one and still have the full 3.6k allowance...or is that wrong?

Each tax year you have a full allowance (at the moment £3600) regardless of withdrawals.

I suspect what Mike is getting at is if you take it out then you cannot ever replace it again unlike a normal taxable account. However I would not let this stop me using a cash ISA as an easy access account if that was all the savings I had.

Yes a lot of people have over £30k in a cash ISA that has been saved up over the years and is earning tax-free interest on the lot. It doesn't have to be that way though.

Cheetah2005

jem16 wrote: »

I suspect what Mike is getting at is if you take it out then you cannot ever replace it again unlike a normal taxable account.

You can't replace it in that tax year right?

What I mean is:

Say I put 3.6K in an ISA and then removed 1K of it. I can't put any more money in that ISA in the same financial year. But come next financial year I can add 3.6K to the current 2.6K that is in the isa (if I want)....

....correct?

Thanks for all the replies so far guys/gals.

jem16

Cheetah2005 wrote: »

Say I put 3.6K in an ISA and then removed 1K of it. I can't put any more money in that ISA in the same financial year. But come next financial year I can add 3.6K to the current 2.6K that is in the isa (if I want)....

....correct?

That is correct.