The Savings Fountain Discussion Area

Careful_ly

Hi Momist

Here is a link to a calculator that takes account of the interest earned on the decreasing balance in your instant access acccount and the increasing balance in the regular saver.
http://www.moneysavingexpert.com/savings/best-regular-savings-accounts
(You need to use the calculator near the bottom of the page in orange box)

Using your 3.25% account and the 8% regular saver rates.

£3600 in the instant access 3.25% = £94.

Using the regular saver:-
£3600 decreasing balance 3.25% earns £43, whilst the regular saver 8% earns £124,
making interest earned for 20% tax payer £167

So the gain on using regular saver is £73 :j

momist

Careful_ly wrote: »

So the gain on using regular saver is £73

Thanks for that link, that's very useful! With my savings untaxed in my wife's name, and taxed if in a regular saver account, the difference is less, about £60. Maybe I should have done it after all, but my point is that the difference between 3.25% and 8% is not as much as most people would expect.

benji_london

I've just read about the First Direct Regular Savings account giving 6% on regular deposits.

I currently have no ISA, anywhere, at all, and I understand that the usual route would fill an ISA, then go to a regular savings acount but as the FD gives 6% would it make sense to start there?

momist

No doubt others will chime in, but the simple answer to your question depends largely on whether you are a regular tax payer, and at what rate? ISA rates are low this year, even lower now than immediately after 6th April, but generally tend to be better for a "regular saver" type account. I've not looked how much you could get in an ISA, but the 6% headline rate you've seen will be before tax.

benji_london

I'm a regular tax payer at basic rate

The calculator on the Regular Saving Page (I cannot link as a new user) suggests that as long as it's over 3.8% then the Regular Saver would make sense but then the general advice is ISA before Regular Savings.

psychic_teabag

The general idea of the fountain is correct, but as you say, blindly saying that ISA is always the first pot to fill is an over-simplification. You just need to look at each possible home for your money, calculate what it would earn for you in your personal circumstances, and allocate savings accordingly. For some, paying into an offset mortgage account would be best. Or moving your savings in and out of a Halifax current account to qualify for the £5 monthly reward.

ISA does have one special attribute, which is the long-term tax savings, and the fact that there is a use-it-or-lose-it annual allowance. So while tactically, ISA may not be best short-term, it might still work out best long-term. After all, your regular saver only lasts one year - when it matures, you need to move the lump sum somewhere else. When the fad for high-interest-paying current accounts wanes, people might regret not having taken advantage of the allowances over a few years.

A good strategy for many would be to pay into a regular saver, then when it matures, move the capital into an ISA, and start again.