Savings Rate Question

manic1_2

Hell. My girlfriend and i are currently saving for our wedding and deposit for a house. We are getting married next year but plan to rent and save a bigger deposit and hope that houses prices may become affordable.

Anyway we have a combined ISA total of £17,700 (she has added to her own isa over the years and i have added to mine) We hope to keep the ISA's for a house deposit and keep adding to it them.

The ISA's are now filled. Their rate is 2.5%.
What i would like to know is what rate should we be looking at for a savings account that would match or beat the ISA rate of 2.5%. In other words after tax the savings account rate would be 2.5%+

One other thing is it better to keep using the ISA for our house deposit if we intend to withdraw it at some stage in the near future?

Thanks

Baldur

manic1 wrote: »

What i would like to know is what rate should we be looking at for a savings account that would match or beat the ISA rate of 2.5%. In other words after tax the savings account rate would be 2.5%+

just over 3.1% - why not transfer your ISAs to a provider that offers a better rate?

Read through this post for 'best buy' ISAs which accept transfers.

manic1_2

Thanks for the info

YorkshireBoy

manic1 wrote: »

...what rate should we be looking at for a savings account that would match or beat the ISA rate of 2.5%. In other words after tax the savings account rate would be 2.5%+

Assuming you're both basic rate tax payers, multiply by 1.25 to gross it up, ie allow for 20% savings interest taxation, so 2.5 x 1.25 = 3.125%

If one or both of you are higher rate tax payers then you'd need to multiply by 1.66667, so 2.5 x 1.66667 = 4.16%

One other thing is it better to keep using the ISA for our house deposit if we intend to withdraw it at some stage in the near future?

If you intend to withdraw all your funds it's probably best to concentrate on net rate, rather than shielding cash from interest taxation in future years.

manic1_2

YorkshireBoy wrote: »

If you intend to withdraw all your funds it's probably best to concentrate on net rate, rather than shielding cash from interest taxation in future years.

Could you explain why this is best? Thanks

YorkshireBoy

manic1 wrote: »

Could you explain why this is best?

If you were saving for the long term you'd possibly be prepared to take a hit on the rate now in order to benefit in later life (many people now have £40-50K in cash ISAs and are therefore receiving their interest gross).

On the other hand, because you intend to use the ISA funds for a house deposit it, your objective is out-and-out short term return I would imagine.

Best summed up as 'do you want jam today or jam tomorrow?'

manic1_2

The best savings rate i can see is CitiBank 3.30% (2.64% after tax???)

Im currently bank with A&L who are offering 3% (2.4% after tax??)

Im thinking i should open the A&L savers account and dump our ISA's of £17,500 and then my girlfriend and i just keep saving into it each month? We can save a total of £1100 per month.

Is this the best option? I know CitiBank offer 2.64% but switching banks for 0.24% seems a lot of hassle

Baldur

manic1 wrote: »

The best savings rate i can see is CitiBank 3.30% (2.64% after tax???)

Im currently bank with A&L who are offering 3% (2.4% after tax??)

Im thinking i should open the A&L savers account and dump our ISA's of £17,500 and then my girlfriend and i just keep saving into it each month.

Why would you move ISAs which are paying 2.5% net of tax into a taxable account paying 2.4% net of tax?

manic1_2

Baldur wrote: »

Why would you move ISAs which are paying 2.5% net of tax into a taxable account paying 2.4% net of tax?

Maybe im getting mixed up here but the difference is only small? 2.5% v 2.64%

We cant add any more money to the isa's (until next april)

If we put the lot into an account paying 2.4% after tax at least we can add to it each month? Thats £17,700 plus £1100 per month.

Depending on house prices we are hoping to use the £17,700 already saved for a deposit late next year. Aren't ISA's really for long term use?

Baldur

manic1 wrote: »

Maybe im getting mixed up here but the difference is only small? 2.5% v 2.64%

We cant add any more money to the isa's (until next april)

but you can transfer the ISAs to a provider that pays a better rate - 3% is certainly available, e.g. First Direct (fixed rate until next November - but easy access)

Aren't ISA's really for long term use?

You can use them as you wish, as long as they are easy access.

What you need to look for, as previously posted is the best net rate - if transferring your Cash ISAs achieves that do it. Simply withdrawing them loses any tax benefits and you would be potentially losing more than half a percent just looking at the difference between a 3% ISA and your proposed 2.4% net taxable account.


<Edit> The difference in interest over a year on your £17.5k would be:

ISA @ 3% - £525 compared with A&L @ 2.4% (net) - £420

ses6jwg

Imo never ever ever move money out of an ISA.

Its one of the very few tax breaks we simpletons get, abuse it till the cows come home dont let any of these rotten MPs get a single penny extra of your hard earned.