Interests and penalties on ISAS and savings accounts

ivonne_english

Hi all

I have been reading the advantages of ISAS.I have been advised by Barclays that people have the following:

-a current account
-a savings account
-an ISA account (or more as they mature) which has a limit as otherwise everyone would put all their money here!


1) I have been told that with ISA, what is worthwhile is to put the amount in in April rather than mid year or towards the end of the tax year as then the interest would be lower? So the interest fluctuates from high to low. Is it the same with savings accounts? Does it make a difference when to put it or the interest if fixed throughout the year regardless of the amount one puts in?


2) My barclays savings account obviously taxes my savings but it allows instant access for withdrawals but would I be penalised? If so, how much would they take as a penalty? Is there an average % amount I can think of?

Many thanks!

Stompa

ivonne_english wrote: »

1) I have been told that with ISA, what is worthwhile is to put the amount in in April rather than mid year or towards the end of the tax year as then the interest would be lower? So the interest fluctuates from high to low. Is it the same with savings accounts? Does it make a difference when to put it or the interest if fixed throughout the year regardless of the amount one puts in?

For each day that your money is in the account you'll earn a days worth of interest. So the more days the more interest.

rb10

ivonne_english wrote: »

I have been reading the advantages of ISAS.I have been advised by Barclays that people have the following:

-a current account
-a savings account
-an ISA account (or more as they mature) which has a limit as otherwise everyone would put all their money here!

For the current account, look here: http://www.moneysavingexpert.com/banking/compare-best-bank-accounts
If you stay in credit, then Halifax and Lloyds are the best. If your current account is with Barclays at the moment then it probably pays 0% interest - not a good deal!

For the savings, see here: http://www.moneysavingexpert.com/savings/savings-accounts-best-interest
Best instant access rate is 2.9% AER (compare this with ~0.1% AER from Barclays).

For ISAs, see here: https://forums.moneysavingexpert.com/discussion/401374

ivonne_english wrote: »

1) I have been told that with ISA, what is worthwhile is to put the amount in in April rather than mid year or towards the end of the tax year as then the interest would be lower? So the interest fluctuates from high to low. Is it the same with savings accounts? Does it make a difference when to put it or the interest if fixed throughout the year regardless of the amount one puts in?

Open it as soon as you are able to. The longer it's open for, and the more money that it has in it, the more interest you'll get. This applies to all savings accounts, including ISAs.

ivonne_english wrote: »

2) My barclays savings account obviously taxes my savings but it allows instant access for withdrawals but would I be penalised? If so, how much would they take as a penalty? Is there an average % amount I can think of?

Depends on the actual account that you have. However, if you want to get any interest on it, you'd be better off closing it and opening one of the ones in the above link.

xrjtg

ivonne_english wrote: »

1) I have been told that with ISA, what is worthwhile is to put the amount in in April rather than mid year or towards the end of the tax year as then the interest would be lower? So the interest fluctuates from high to low. Is it the same with savings accounts? Does it make a difference when to put it or the interest if fixed throughout the year regardless of the amount one puts in?

If you have an ISA that pays 3% a year and a normal account that also pay 3% a year then, after tax, you earn an extra 0.6% a year by keeping the money in an ISA rather than the normal savings account. The advantage to paying into the ISA at the start of a year is that you get the 0.6% extra for a longer period of time; you could pay in at the end of the year without losing your allowance, but you would have lost the 0.6% advantage for the money that could have been in there this year.

ivonne_english wrote: »

2) My barclays savings account obviously taxes my savings but it allows instant access for withdrawals but would I be penalised? If so, how much would they take as a penalty? Is there an average % amount I can think of?

That depends on which account you have. Most instant access accounts allow you to access your money at any time without penalty, but a few may have a limit on the number of withdrawals you can make each year before you start to get charged. The documents you received when you opened the account (or the leaflet/website you've read if you are thinking about opening an account) should explain how things work (or would work) in your case.

Lansdowne

Here are some more sensible answers:
1) A current account is for your normal spending, if you have savings they should be in a savings account gaining interest. Some current accounts pay interest but they usually require you pay in £500-£1000 per month (for example if you pay in your wages).
2) What you have been told about ISAs is probably that in past years, higher rates were advertised towards March-April in order to attract savers before the tax year ended. This might be true again this year, nobody knows. But if you delay till then you are losing the interest for the next 2-3 months!
3) If a savings account is "instant access" that means there is no penalty for withdrawing. Some ISA accounts are also instant access. (It does of course take a few days to withdraw a large amount). There is a penalty for a "notice account" or usually for a "fixed rate bond". You should always ask if an account is instant access if that's what you need.
4) The limit for paying into a tax-free ISA is £5100 per year, so if your amounts are smaller than that, you might not need to worry about the limit.

xrjtg

Lansdowne wrote: »

2) What you have been told about ISAs is probably that in past years, higher rates were advertised towards March-April in order to attract savers before the tax year ended. This might be true again this year, nobody knows. But if you delay till then you are losing the interest for the next 2-3 months!

I hadn't read this as being what you were told, but at risk of complicating what I have already said, it can be true. Lots of people are disorganised enough that they don't use their ISA allowance until they are about to lose it. This can result in a scramble between banks at the end of the tax year as they try to make sure that all this extra cash comes to them.

There can be good ISA offers at any time of the year though, so I wouldn't worry too much about this.

Lansdowne

Oh yes, one more little thing

ivonne_english wrote: »

2) My barclays savings account obviously taxes my savings but ...

Well no, they tax the interest you earn on your savings. And since most interest rates are small at present, the amount you lose on tax is small.
For example for £3000 into an account paying 2%

With no tax (in an ISA) it's worth £3060 after one year
With tax taken off it's worth £3048 after one year
The tax is £12. (More if you pay higher rate tax).