Would i be better paying into a standard savings account instead of an ISA??

Nine_Lives

Currently have 12k in a Nationwide 6 month ISA bond which matures in July.

I now have 2x Lloyds Vantage accounts, both with £5k in, which obviously totals £10k.

The interest rate for this account is as follows: http://www.lloydstsb.com/current_accounts/classic_and_classic_plus_accounts.asp

Current Accounts with Vantage

Balance Interest Paid MonthlyAER %Gross %Net %
£1+ 0.10 0.10 0.08
£1,000+ 2.00 1.98 1.59
£3,000+ 3.00 2.96 2.37
£5,000 up to £7,000 4.00 3.93 3.14

So i'm hitting 3.14% in my pocket.



Out of the 2 accounts, i don't need access to one of the £5k's, but i may need access to the other £5k for "just in case" purposes (car dies, get a hefty bill, go on length SSP from work etc)



Question is .......... what would you do/recommend in this situation?

chirpchirp

If you don't pay tax you would be better with the vantage accounts as they pay 4% before tax which is higher than any current ISA is offering. However, in the long run you will probably be better with an ISA.

Each year you can transfer your ISA and get the best rates. It may be that one day you are a higher rate tax payer ( assuming you aren't already!), any interest in future years will also be tax free.

Hope that made sense, not managing to put into writing what I'm trying to say. Basically if you don't pay into your ISA, you lose that tax allowance which is a tax allowance for years to come ( provided ISA's are continued by the government)

Nine_Lives

As far as allowances & such go:

I do pay tax, but i don't pay it at the higher rate & unless i make changes to my job path, i never will. This year i'll be touching 17k. My highest ever was 18k a few years ago.

I know that ISAs are tax free, but if an ISA is offering *picks random figure* less than 3.14% & the Vantage is offering 3.14% net, then i'd be better off with the Vantage surely?



Am more than happy to have it explained to me if this is wrong as i want my money going to the best account i can possibly put it to.

blueberrypie

K_P83 wrote: »

I know that ISAs are tax free, but if an ISA is offering *picks random figure* less than 3.14% & the Vantage is offering 3.14% net, then i'd be better off with the Vantage surely?

Only in the short term. You will pay income tax on whatever interest you make on the funds in your Vantage account this year, and then next year you will pay income tax on the interest on the interest. The big advantage of ISAs is that you can benefit from compound interest in the long term without it ever becoming taxable.

jamesunisaver

That is a very good point that i had never thought of before when thinking about this kind of thing. As you can see from my name I have started going to uni so i am aiming to set up whatever savings I can afford and I admit to being a bit green on these parts of it.

Thank you for helping me, even if it was intended to be for the OP

chirpchirp

Well done Blueberrypie, you put over what I was trying to say.

Besides which , vantage is a current account and current accounts are normally lower than savings. I have a vantage accountand I think it's great but if interest rates rise I wonder if vantage will still be so competitive. I feel it's only so good because of the upside down BOE rate. So, in future years you may be able to transfer this years ISA to an ISA paying 7% gross and you would benefit from the money being compounded.

Nine_Lives

chirpchirp wrote: »

So, in future years you may be able to transfer this years ISA to an ISA paying 7% gross and you would benefit from the money being compounded.

Ahh i totally forgot about this point. Thanks.