Maximising interest - Cash ISA or Regular Savings account?

alanparis

I've noticed that ISA providers are offering extremely low rates of interest at the moment. I have £8,000 to invest - would I be better off drip-feeding this into the most preferable Regular Savings account than setting up an ISA? I realise this applies to only the first £3,600 of the £8,000. The rest I would put elsewhere (or wherever is best!). Many thanks in advance for your suggestions

ses6jwg

Yes but rates wont stay low forever.

The money you put into the tax free ISA wrapper is tax free for as long as it remains untouched.

John_the_Boy

A lot depends on what tax you pay and what rate the ISA is. For example the best regular saving account I have found pays 4.5%.

If you are a basic rate taxpayer you will get 3.6%
If you are a higher rate taxpayer you will get 2.7%

http://www.thisismoney.co.uk/savings-rates-converter

If you can find an ISA paying more than these figures then you are better off with the ISA and then using any spare cash to drip feed into regular savings account. If not the regular savings account would be best.

The best ISA rates are all around 2.75% so a regular savings account is looking good if you are a basic rate taxpayer.

opinions4u

It depends on the rates at the time, not just for the ISA or regular saver, but also a feeder account.

It depends on the indiviual's tax status.

Very often funding a regular saver with £300 a month and paying the maturity capital in to an ISA is the best solution.

But it varies from individual to individual and what's right for me isn't right for the rest of the planet.

alanparis

Thanks for all your advice. I've done some sums and the ISA came out on top. Turns out that even though the interest (after tax) on the most preferential Regular Savings account is greater than the interest on the most preferential ISA the Regular Savings account would actually accrue less interest. This is due to the drip-feeding nature of the Regular Savings account, ie. not earning interest on the full amount over the 12 months.

This was worked out as a basic rate tax payer, with the most preferential accounts sourced from this website. I would imagine it's a similar outcome for higher rate tax payers.