ISAs vs Regular Savers

Rose_Crow

Hi fellow savers!

I'm sure I saw on Martin's site a comparison tool which showed how much a 'normal' savings account would need to pay in interest, in order to beat the interest rate on an ISA (in my case a basic rate tax payer).

Does anyone know where it's gone? I've looked everywhere.

Cheers

(hope I didn't dream it!)

Baldur

A taxable account's rate would need to be divided by 1.25 to give its net rate (at the 20% basic rate of tax) - i.e. a straightforward taxable account with an AER of 4% divided as above would give a net rate of 3.2%.

Regular savers are a different kettle of fish, unless you are comparing them with a regular saver ISA, as only the initial deposit is likely to achieve the full quoted AER, subsequent deposits only earn a pro rata amount of the AER as they are fed into the account over a year.

The Regular Savings Calculator and Savings Calculator will show what you can expect to earn by selecting the relevant tax rate.

Rose_Crow

Thanks very much. I don't have a lump sum, I just save every month, usually for short term stuff. So I think my A&L Flexible ISA's rate is 2.85%, so in this case the new Lloyds monthly saver (5%) beats this as it pays 4% after tax - is that right?

Baldur

grn.w.nv wrote: »

Thanks very much. I don't have a lump sum, I just save every month, usually for short term stuff. So I think my A&L Flexible ISA's rate is 2.85%, so in this case the new Lloyds monthly saver (5%) beats this as it pays 4% after tax - is that right?

You obviously haven't entered your figures into the calculators, to which I linked.

At 2.85%, with a deposit of £250 per month your ISA would earn around £46.11 in interest over a full year.

At 5%, £250 per month in the LTSB monthly saver would earn around £64.61 after basic rate tax over a full year.

Rose_Crow

Lovely thanks - I guess you edited your post any added the links after I read it.

Thanks for your help

psychic_teabag

There are long-term advantages to having an ISA. I think LLoyds reg.saver allows early access to the money, so one strategy might be to pay the money into that, but move the balance to an ISA in March (then continue with the reg saver to build up capital for next year's ISA).

But if you are only saving for the short-term at the moment, getting money into an ISA may not be that important at the moment.

Mikeyorks

grn.w.nv wrote: »

so in this case the new Lloyds monthly saver (5%) beats this as it pays 4% after tax - is that right?

It is right ......... when taken in conjunction with :-

I don't have a lump sum, I just save every month

The Regular Saver rate will beat any other current rate - when you're adding new money from current income - as you appear to be. If you had a lump sum and were re-cycling the money into the Regular Saver from that. Then you would need to take account also of the interest rate on the account holding the lump sum? As that would overall reduce the benefit of the Regular Saver (eg lump sum held at 2% - Regular Saver at 5% ....... then the overall return would be adjacent to 3.5%)

But as it's new money and relatively short term ..... the RS is the right choice provided you can fund it for the minimum period required.