Short Term Loan

CLAPTON

huggierich wrote: »

I think I know where our wires are getting crossed. I think you're assuming that I'm going to find a savings account with an equally high rate for my excess £3600 (which I receive in 45 days time) after the ISA deadline has passed. So my only benefit is the fact that it's tax free savings.

I'm assuming that as it can't go into an ISA it'll sit in my e-Savings account, where not only will the interest be taxed, but the rate is about 0.8% AER.

you would be an amazingly stupid person to do that wouldn't you

and in any event you aren't even adding the 3,600 to the first option but just ignoring it all together


as I said
state you assumptions very very very accurately and then we can work it out

huggierich

Thanks for the help Clapton, I'll have a think, get some sleep, and re-digest tomorrow. Thanks for your replies and I'll update tomorrow.

CLAPTON

OK
lets make the following assumptions


on 6th March 2011 a person is in the following situation

1. he has no available cash
2. he has an ISA paying 3% AER with 3,600 'room' still left in it
3. he is expecting to have available 8,872 on the 6th April from somewhere
4. he has an ordinary saving a/c paying 3% AER gross available which will of course be taxed at 20%
5. he is able to borrow 3,600 for one month at a flat rate of 2%


so he notices he has two options

option 1 ..wait until 6th April 2011
-and invest 5,200 in his ISA which will make 3% by 5th april 2012 ie. 156 so he will then have 5,356
-and invest 3,672 in his ordinary account so making 3672 x 3% x 80% = 88 so he have 3,760 by year end

or in total by 5th April 2012 he will have £9,116

option 2
-he borrows 3,600
-the interest charged will be 3,600 x2% i.e. £72
-the 3,600 will earn 3% AER in his ISA until 6th april 2011 i.e. 3600 x3 %/12 = £9
-on 6th April 2011 he spends 3672 of his money repaying his debt (i.e 3,600 + 2%)
-he then saves 3,600 + 9 + 5200 = 8809 at 3% in his ISA for a year so making 264 in interest so by april 2012 he has a total of 9,073


So all I'm saying is you must be consistent and use the money in BOTH option to best advantage.

huggierich

You're right. Like I said in my earlier post, my savings account has a very low interest rate, which is where I was assuming my other cash would sit when I exceeded my ISA allowance.

Having read the guides here, I can see now that there's other savings accounts that have much higher interest rates, some on a par with the rates I'll get in my ISA, just without the tax free benefit.

Thanks for all your help.