ISA @ 5% or Savings Account at 10%?

Choccyholic

I have some money in an instant access ISA. I can also currently save £100 a month. I have the following questions:

a) I have the opportunity to have an A&L adults regular saver at 10% (which I would have to pay tax on the interest). I don't know the maths, but is this a better deal than an ISA at 5%? (I'm on the 'regular' rate of income tax).

b) Next month will be the aniversary of our Child's Halifax Regular Saver at 10%. Does anyone what will happen with the Halifax Children's Regular Saver account on the aniversary? I do know that the capital and interest will be put into a child's savings account. But, will the regular saver account still be active at 10% and be expecting the regular payments? (I suspect I'll have to contact Halifax to find out).

If the Halifax account will still function as it has been over the past year, then of course I'll keep with that.

I'd appreciate any thoughts you may have. Cheers :beer:.

jenniferpa

I'm sure someone else will be along to do the sums, but would you be able to put the full £3000 in the isa at the beginning of the year? And what is the maximum amount you can pay into the regular savings account each moneth?

masonic

Choccyholic wrote:

a) I have the opportunity to have an A&L adults regular saver at 10% (which I would have to pay tax on the interest). I don't know the maths, but is this a better deal than an ISA at 5%? (I'm on the 'regular' rate of income tax).

Using some very approximate calculations, if you are comparing paying £100/month into the isa with paying it into the regular saver, then you are looking at 5% vs. 8% interest after tax for the regular saver. If you have a lump sum that you could put straight into the ISA, but drip-feed into the regular saver from a normal savings account, then you are looking at 5% vs. about 6% net for the regular saver route (assuming the lump sum is earning 4% net before being paid into the reg saver paying 8% net, payments being spread evenly over 12 months).

So it seems to me the regular saver would give you the max interest either way and you could move that money as a lump sum into an ISA in the next tax year. You would lose out on this years ISA entitlement, though, although if you are not planning on dramatically increasing the amount you save per month this should not be a problem.

homersimpson_3

a) I have the opportunity to have an A&L adults regular saver at 10% (which I would have to pay tax on the interest). I don't know the maths, but is this a better deal than an ISA at 5%? (I'm on the 'regular' rate of income tax).

with a+l regular saver max you can pay in every month is £250 per month so you don't 10% on max you can pay into isa- 3k- from day 1- so you put balance into high interest account and drip feed 10% account from this so it continues best rate of interest. i think the thread said after taking off tax a+l works out at 8% interest which is better than 5% but after taking the fact it doesn't earn interest at 10% all year it works out at 6%. there are some isas paying better than 6%. reply short and sweet because have to go. sorry.

SeanW

1)If my calculations are correct, based on putting in £100 a month from an initial £0:

A&L you will have £1252 at the end of the year (8% NET pa)
ISA you will have £1232.50 at the end of the year(5% NET pa)

A&L will pay you more interest over the year. A few things to consider:

You will have to open an A&L current account.
At the end of the year, the money will be transfered into this current account, and will not be earning 10% any more.
Your monthly amount is fixed from the time you open until the anniversary of the account.
A withdrawl will close the account.

2)Payments will continue and will earn a new fixed rate of interest, dictated to you by Halifax. The sum earned upto that point will be earning the rate of interest in whatever account you chose for it to end up in.

mary

Don't forget as well, that in order to have the A&L Regular Saver, you have to open a current account and you have to pay in £500 p.m. into that current account. I drip feed the A&L Regular Saver with £250 and another Regular Saver for £250 with Halifax

Andy_L

I'm with Sean, as a basic rate tax payer the regular saver is slightly better if you can only drip feed.
IMO best bet would be to drip feed into the regular saver & when the account ends move it into a cash isa for future years.

Andy_L

But you'd only loose the oportunity cost for the 1st year if you had the lump sum (which the OP already has in an ISA). If you drip feed from income into the ISA it's less return than the Reg Saver.
The OP wont "lose the ability not to pay tax on the interest forever" as it will be into the ISA as soon as the better retrun on the Reg Saver ends and will still have £1800 of ISA allowance for any lump sum savings they want to chuck in.

humfer

If your limited to £100 per month then the regular saver is quite clearly a winner as you will get 8% after tax as opposed to the tax free 5% on the ISA

SeanW

alexjohnson wrote:

That's right if it's switched in this tax year. It isn't if it isn't.

Unlikely, considering you have to have the account for 12 months, that will take you into 07 tax year.

If you have £3000 above this to spare in April 2007 to fill 07 allowance, you would have sacraficed the tax free interest on the £1232.50 you could have ended up with in the first year. This would cost about £13 to the taman in that year. (This is based on you putting that money into a savings account paying 5% gross pa and you remain in the 20% tax group)

If the lump sump is available, I would put it straight into the ISA. If the existing ISA isn't a 2006 one, perhaps you could open one of these higher ISAs at 5.2% for this year, the £1200 lump would then be worth £1264.40 at the end of the year and have it's tax free status for years to come.

Choccyholic

Wow! :j Thanks for all the replies and explanations guys, didn't realise it would open such discussion. All food for thought. (The ISA money is earmarked to be used during my maternity leave and if anything is left to go against the mortgage.)