Interest Rates: Everything you ever wanted to know Article Discussion

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  • jamesd
    jamesd Posts: 26,103 Forumite
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    bill wright, you would be wrong because you are ignoring the interest on the savings that have not yet been transferred to the regular saver account. You get 6.5 times the monthly payment at the regular saver rate and 5.5 times at the other account savings rate. So the total interest from the regular saver use is 52 from the 8% regular saver plus 27.50 from the 5% feeder account, a total of 79.50.

    You can also open multiple regular savers to get money at higher rates more rapidly. For example, you could open three of the 7.3% variable Skipton BS Special Saver accounts at 250 a month for the first month then drop to 10 for later months. As you need the money for the main account you can close these one at a time and get the money out. Or you could use one regular saver that allows one or two withdrawals and use the withdrawing to fund the main regular saver.
  • HaleyMoney
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    After reading your section on paying tax on savings, could you let me know if I was not working or earned under £5225 per year and was earning over £40,000 in interest on my investments/savings would I have to pay tax
  • jamesd
    jamesd Posts: 26,103 Forumite
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    HaleyMoney, if it was in ordinary bank accounts you would have basic rate tax deducted by the bank, and would not be able to ask for it to be paid without that deduction. You would also probably go into the higher rate tax bracket and need to send a letter to HMRC telling them how much your interest and other income was so that they could charge you tax at higher rate on the small part of it that higher rate tax would be due on. You'd also be liable for extra tax on dividends from shares and distributions from unit trusts.

    You do not count income from ISAs for this, so using your full ISA allowance should be a high priority.

    You also do not count interest from several of the NS&I products, including the Index-linked Savings Certificates that are often a good choice for low risk income production for high rate tax payers, particularly when inflation is rising, as seems likely.

    If you are not already using your stocks and shares ISA allowance you might consider looking at the Blackrock Merrill Lynch UK Absolute Alpha fund. It isn't guaranteed not to lose money but its record so far has been excellent. Because it grows in capital value instead of paying a dividend you'll be able to use your capital gains tax allowance to avoid tax on its growth even if it's outside an ISA, so it's quite interesting.

    Because of options like these it's quite likely that you will be able to avoid paying higher rate tax just by careful selection of where your money is put. If you'd like more specific guidance you should start a discussion in the Saving and Investing section and say how you currently have the money saved and invested and what income it's producing, as well as what else you have producing income and if you're over 65. Knowing how long you want the income is also useful because buying an annuity for say a five year term using part of your capital can generate an income that has minimal tax to pay because much of the income is treated as a tax free return of your capital. You should also say how much of a drop in capital value you stand without losing sleep until it recovered - if you can stand 15-30% you can get better long term prospects.

    You may also be entitled to working tax credits if you're working enough to qualify.
  • paris12
    paris12 Posts: 33 Forumite
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    i am thinking of paying my mortagee off. i only owe 24,000 but should i pay it off or leave my money in the bank
  • jamesd
    jamesd Posts: 26,103 Forumite
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    Are you using your ISA allowances? Is the money in bank savings accounts, cash ISAs, stocks and shares ISAs or somewhere else? What is the mortgage interest rate? Are you a tax payer?
  • paris12
    paris12 Posts: 33 Forumite
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    I am using my isa allowances the rest is in the building society i think i am getting a rate of 5.5%. I am a tax payer and my morgage is 1% below the bank rate
  • jamesd
    jamesd Posts: 26,103 Forumite
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    OK, some suggestions based on you having a 4.25% (5.25%-1%) mortgage, needing 5.32 to beat it for a basic rate payer or 7.09 for higher rate:
    • Check that you're on the best cash ISA rate and transfer if not.
    • You can get regular saver rates of 7.6% before tax and that's better than paying off your mortgage.
    • You could consider stocks and shares ISA use with Blackrock Merrill Lynch UK Absolute Alpha as the fund, which seems fairly safe and delivers more, tax free. But there is risk that it could fail to continue to do that. You can also hold as much of this as you like outside a S&S ISA if you're using your S&S limit already.
    • You can get fixed term deposits/bonds from banks at rates of 6.5% and higher, enough for a basic rate tax payer to be better off than repaying your mortgage and rates above 6% are available for instant access accounts, also enough to beat your mortgage. This will not be sufficient if you are a higher rate tax payer.
    So, it seems that for you to pay off your mortgage will cost you money compared to the alternative things you could be doing with it if you are paying basic rate tax. You can make more interest from savings than you can save by repaying the mortgage. For higher rate it also looks likely that you can be better off by not repaying it, depending in part on your willingness to use the Blackrock or other funds and how they perform.
  • avoniel
    avoniel Posts: 583 Forumite
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    Not sure if this is the right forum but need help for my friend.

    She currently has a credit card debt of £5000. and although she has destroyed it she can only afford to pay off £350 pm. She is paying interest of over £30 pm. Credit card bill is showing monthly interest rate of 0.64% but I dont know how to convert it to APR.

    Can anyone advise me what APR rate would be and I can then use Martin's guides to help her find cheaper.
    Many thanks
  • jamesd
    jamesd Posts: 26,103 Forumite
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    0.64% a month is equivalent to 7.96% a year. That's a very good rate for a credit card so to save interest she'd really need to be looking at getting a new card with a 0% interest balance transfer deal. Alternatively she could see if she can get a personal loan but that wouldn't be likely to reduce the interest rate much.

    This card sounds like one to keep around once she's cleared it. The excellent interest rate means that, if the balance is cleared each month, she can make a fair bit of interest by delaying paying for things between purchase and bill payment time without being hurt too badly if she uses it for extended credit for a few months.
  • savinglikemad
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    Hi, I took out finance on a motorhome at the NEC 2 years ago, We asked the salesman for finance figures over 3, 5 and 10 years for £20000 he asked why the different years we explained well we would not want to stretch ourselves at start of term but would be able to pay additional in a few years time. So needed to see the various figures for what we could affford. All at same Apr he stated, and although the reapyment figures for the five year looked attractive but salesman pushed for ten saying we could pay over five if we wanted and it would not cost any more, He also stated if we did pay extra to inform finance company as they would still charge int on full balance unless we notified them, (he said a prior customer had not phoned and that was what had happened to them) So we took ten year loan out. Mid Nov I phoned to start paying additional £500 per month and was advised that it would make no difference to int as charged was on full loan figure (I think that is called flat rate per the forum) She advised I put money in bank with high interest til I had enough money to pay Off loan in full !!!!! I am currently disputing this with finance company and am now waiting verdict of financial ombudsman, as I feel I was miss sold the loan, also per forum the paper work I received, has APR of 8.4 on it and yet the small print sates the longer the loan is paid the less interest you will be paying and more of the capital, can any one advise what they think
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