What am I missing here?

[Deleted User]

Best fixed ISA rate for 1 year is currently 3%.

Best fixed regular saver for 1 year is currently 4%.

Therefore, the regular saver, although getting taxed is better off. I currently have my money in an ISA but might change.

What obvious point am I overlooking?

BoGoF

Normally with regular saver accounts there is a maximum amount you can pay in each month so that is one downside but as you say you will get more interest (if a non or basic rate taxpayer) on the regular saver.

But I bet after the 12 month fix it drops to a very low rate?

[Deleted User]

I haven't checked but yes, I'm pretty sure they do drop. The plan is to shop around each year to find the best investment for the following year. I am a basic rate taxpayer. Therefore it seems to make sense to start paying into one of these regular savers for the next year whilst keeping the balance I already have in my ISA.

Consumerist

karlcoot wrote: »

Best fixed ISA rate for 1 year is currently 3%.
Best fixed regular saver for 1 year is currently 4%.
Therefore, the regular saver, although getting taxed is better off. I currently have my money in an ISA but might change.
What obvious point am I overlooking?

You can deposit a lump sum in the ISA to earn interest on it for the whole year, up to the ISA allowance. i.e. you get 3% on the whole deposit for the whole year.

With the regular saver you must make smaller deposits at monthly intervals. If, for example, you deposit £425 per month then, although you finish up with £5,100 plus interest at the end of the year, you only get about 2% interest on the £5,100 accumulated. For example, in the first month, interest is only paid on £425 not on £5,100

blueberrypie

karlcoot wrote: »

Best fixed ISA rate for 1 year is currently 3%.

Best fixed regular saver for 1 year is currently 4%.

Therefore, the regular saver, although getting taxed is better off. I currently have my money in an ISA but might change.

What obvious point am I overlooking?

On any account, you only get interest on what's actually in the account. With a regular saver, you can't drop a lump sum in at the beginning - you have to drip-feed into the account over the year - so for example if you're putting £300/month into a regular saver, you're only earning the 4% on £300 the first month, £600 the second, and so on. It works out over the course of the year to be about half the interest you'd earn if you'd earned the same interest rate on the full amount from the beginning of the year.

So if you have the lump sum, it makes more sense to invest it in something that pays interest on the whole amount. If you're saving through the year though, the regular saver is a better bet - but if you can time it so that your regular saver matures before the end of the tax-year, you can use up your ISA allowance for the current year with the funds from the regular saver.

masonic

I've tended to use a regular saver to gather funds to dump into an ISA when it the regular saver matures. When you are saving monthly from income, regular savings accounts take some beating, even after the tax relief of ISAs is considered.

Milarky

karlcoot wrote: »

Best fixed ISA rate for 1 year is currently 3%.

Best fixed regular saver for 1 year is currently 4%.

Therefore, the regular saver, although getting taxed is better off. I currently have my money in an ISA but might change.

What obvious point am I overlooking?

Well, as others have said, the regular saver only supports a monthly amount. The way around that is to hold several monthly savers concurrently. The ultimate situation could be having £5100 available to add to regular savers each month and (say) 11/12ths of this (£4675) of regular savers 'maturing' each month. Then you can say you are at least funding to regular savers at the same cumulative rate as ISAs (not counting interest). If the (often assumed) purpose of cash ISAs is to provide 'an income' (whether tax free or otherwise) then the maturing (net) interest each month from all these regular savers can be compared directly with the ISA - once a year - alternatives.

Mikeyorks

karlcoot wrote: »

What obvious point am I overlooking?

The distinction between 'new money' and 're-cycled' money?

If you have a lump sum - the odds are you hold it in an account paying less than the Regular Saver (not much point in the RS otherwise!). So the overall interest you get is close to the average of the feeder account + the RS account. So the 're-cycling' attracts a better rate than the feeder account but an inferior rate to the RS account.

On current rates - Regular Savers are better orientated towards money from current income ('new money') as you get the undiluted interest rates. Re-cycling (aka drip feeding) really only comes into it's own when interest rates between feeder accounts and RS accounts open up by several % points. Or when you get an exceptional offering such as the 12% Halifax RS from June 08 - June 09

[Deleted User]

Many thanks for all the replies. The lump sum is what I have been missing! Knew there had to be something. Also picked up some good ideas.

Thanks again!

thenudeone

Milarky wrote: »

Well, as others have said, the regular saver only supports a monthly amount.

However, some regular savings ISAs allow transfers in (eg: Newcastle Building Society) and will apply the generous interest rate to the whole balance not just the regular savings balance.
BUT you have to time the account opening carefully. Eg: If the new account requires at least 9 monthly payments in a year, then opening it now (October) would mean that you are committed to making next year's Cash ISA into the same account, and can't shop around for the best rates which are usually reserved for new money.