Savings account or an isa

niceday999

My son has around £1000 in a savings account getting virtually no interest at all and another £1000 gathered up lately from birthday and working ( summer job)and given from relatives for getting good exam results. We were thinking of opening an ISA for him but he will be going back to school in Sept and if working will only have a part time job ( say 10 hours per week ) i assume he will not pay tax on his job , so would as ISA be best for him or a savings account . When he puts in this £1500 out of the above money he will not be lifting it for at least a year. I see Intelligent Finance CAsh ISA is offering 2.75%
He is 16, will be 17 in DEcember...

alastair_h

I know the you may be slightly better off if you go for a savings account rather than an ISA in the present climate, however long term if he was able to get into the habit of saving in a cash ISA this would do him a lot of benefit long term earning all that lovely tax free interest. And if you don't use it you loose it, personally I would steer him towards a Cash ISA - it's your choice at the end of the day. I wish someone had got me into Cash ISA's earlier than I did.

edit. Actually thinking about it £1500 @ 2.75% (IF) for 1 year in a cash isa (assuming no change) = £1,541.
£1,500 @ 3.15% (Alliance & Leicester Online Saver 5) =£1547 - 20% tax = £37
If my calculations are right £4 better off with a cash ISA. Unless you know of better interest rates??

niceday999

Thanks ...but would he pay tax. He'll be in full time education. He may take apart time job locally no more than 10 hours per week ay in asda or something ?
what about this one with alliance and leicester theres £50 cashback with quidco
Premier 21 Current Account

Get a market-leading rate just by managing your bank account online.
* Earn 5% AER (fixed for one year) on balances up to £1,000. After one year, 1% AER (variable) applies. Balances over £1,000 earn 0.10% AER (variable).
* You must be aged between 16 and 20. You need an e-mail address and access to the internet.

alastair_h

Depends if he went over his allowance, so possably not. However when he does pay tax he will have lost his tax free entitlement - you are setting him up for the future not just the now.

niceday999

alastair_h wrote: »

Depends if he went over his allowance, so possably not. However when he does pay tax he will have lost his tax free entitlement - you are setting him up for the future not just the now.

oh thats right there is an amount for single people to earn before they pay tax...will have a look
I am thinking short term really as when my daughter went to uni at 18, she opened a new student account then.......

herbertthehelper

niceday999 wrote: »

My son has around £1000 in a savings account getting virtually no interest at all and another £1000 gathered up lately from birthday and working ( summer job)and given from relatives for getting good exam results. We were thinking of opening an ISA for him but he will be going back to school in Sept and if working will only have a part time job ( say 10 hours per week ) i assume he will not pay tax on his job , so would as ISA be best for him or a savings account . When he puts in this £1500 out of the above money he will not be lifting it for at least a year. I see Intelligent Finance CAsh ISA is offering 2.75%
He is 16, will be 17 in DEcember...

Cash ISA is the best plan - but then it depends if he understands there use? etc the long term benefit - I remeber I didnt when i was that age!

niceday999

herbertthehelper wrote: »

Cash ISA is the best plan - but then it depends if he understands there use? etc the long term benefit - I remeber I didnt when i was that age!

I.m not sure i do and i'm his mommy.......Do they necessararily have to be long term ????
I am thinking of taking one out myself but i like the security of being able to withdraw the money if i need to, although my halifax web saver is virtually nil interest.......

alastair_h

niceday999 wrote: »

I.m not sure i do and i'm his mommy.......Do they necessararily have to be long term ????
I am thinking of taking one out myself but i like the security of being able to withdraw the money if i need to, although my halifax web saver is virtually nil interest.......

Long term he would potentially be able to save £3,600 this financial year, then £5,100 next financial year and so on. This would build up a large tax free nest egg for as long as these are valid. There are instant access ISA's availavailble (variable rate). I think the best of these is currently Intelligent Finance at 2.75%. Once he is earning obviously the tax free benefits are well worth having. They don't have to be long term but if you take money out of a cash ISA you can't put it back in. Most will earn compound interest which then continues to earn tax free interest on the lump sum deposited and any interest earned.