ISA vs Savings Acc

ratbag2

As someone who really hasnt a clue where money is concerned - please can you guys help me get my head round something.

I am a low rate tax payer (ie 20%), my earnings arent huge and so i pay little tax anyway and am close to retirement.

So my question is: Is there any advantage in me putting money this tax yr into an ISA, even the A&L one at 3.5% as apposed to a 4.4% 3yr fixed rate e-savings acc (with Nationwide)? Does the extra interest outweigh the benefit of the tax free element of the ISA? There's a 270 day interest penalty with the fixed rate e-savings acc. But i am happy to leave some money in there for 3 yrs. Advantage is that i can open several e-savings accs so that i could spread the risk if i ever need to access this money.

Im already with Nationwide and i at least know them and have had no problems with them. One thing that worries me about the A&L ISA is the problems i might have in yrs time when the interest rate drops and i would need to transfer it somewhere else. Stories i have heard about A&L dont fill me with confidence. Wont they charge a penalty for transfering else where or delay the transfer so long that i loose on it anyway? I have really tried to search thier site for info on costs of transfering away from them but there is nothing about costs of doing this.

Thanks

Lokolo

Transferring out could end up being a pain but I tend to fix for periods anyway so its usually ok.

Although the tax benefits are the moment aren't great, in the past they have been. I don't know what will happen in the future but if ISA rates start creeping up it then tends to make it a bit more worthwhile.

Also, within ISA, the interest compound and stays interest free, which is very useful is the above happens.

4.4% after tax is 3.52% so you would only be 0.02% better off. However, fixing for 3 years at the moment isn't advisable as rates are unlikely to get worse, and only better, we just don't know when....

Baldur

ratbag2 wrote: »

So my question is: Is there any advantage in me putting money this tax yr into an ISA, even the A&L one at 3.5% as apposed to a 4.4% 3yr fixed rate e-savings acc (with Nationwide)?

As Nationwide are offering a 3-year FRISA http://www.nationwide.co.uk/savings/cash_isa/cash-isa.htm offering the same 4.4% rate as the e-savings account, the decision doesn't have to be between a taxable and non-taxable account if you decide that you want to tie your money up for 3 years.

ratbag2

Thanks for your reply. I sort of thought that 4.4% was pretty good since most other savings accs are so much lower.

Lokolo wrote: »

Transferring out could end up being a pain but I tend to fix for periods anyway so its usually ok.
.

Could you explain please what you mean by '... tend to fix for periods ...'

Thanks again

ratbag2

Baldur wrote: »

As Nationwide are offering a 3-year FRISA .... offering the same 4.4% rate as the e-savings account, the decision doesn't have to be between a taxable and non-taxable account if you decide that you want to tie your money up for 3 years.

I thought i had searched the site! Thanks a lot for pointing this out. I just have to decide now if i really do want to tie up my money for 3 yrs!

Thanks again