Can a good savings account give higher intrest after tax compared to ISA?

AndiW_2

If I invested my money into a savings account with the best intrest, after tax could it end up giving me a better profit than an ISA.

I'm not to good with intrest rates at all and don't understand tax in savings accounts so hopefully somebody can help menout with this one.

I have a 2% e-ISA with natwest and want to make sure I am getting the best rate which I am probably not as I just got the savings accout first because natwest holds my current account.

GingerFurball_2

http://www.moneysavingexpert.com/savings/best-regular-savings-accounts

Hungerdunger

AndiW wrote: »

If I invested my money into a savings account with the best intrest, after tax could it end up giving me a better profit than an ISA.

In a word, "yes".

Personally, I always put the maximum I can onto cash ISAs, because I believe that over the long term they will provide me with a better return. However there have been times when ISA rates are significantly lower than those of other savings accounts so that the benefit of their tax-free status in minimal.

Assuming you are a basic-rate tax payer, the easiest way to compare ISA rates to non-ISA rates is as follows:

If you want to find out what rate you'd need to earn on taxable savings to beat an ISA, multiply the ISA rate by 1.25.

E.g ISA rate = 4%; To equal this, your taxable savings would have to offer 4 x 1.25 = 5%.

To do it the other way round, multiply the taxable savings rate by 0.8 to find out the equivalent ISA rate.

Lokolo_2

AndiW wrote: »

If I invested my money into a savings account with the best intrest, after tax could it end up giving me a better profit than an ISA.

I'm not to good with intrest rates at all and don't understand tax in savings accounts so hopefully somebody can help menout with this one.

I have a 2% e-ISA with natwest and want to make sure I am getting the best rate which I am probably not as I just got the savings accout first because natwest holds my current account.

The answer to your Question is Yes, there are some accounts which end up paying more after tax than an ISA, Santander first home saver pays 5% (4% after tax) for example. The regular savings accounts which the poster above has linked to may not be exactly what you need unless you are looking to regularly deposit a fixed amount!

Consumerist

A recent example, now coming to an end, was the Lloyds TSB Vantage current account which offered 4% pa gross - equivalent to 3.2% pa net. Until recently, 3.2% pa for a cash ISA was hard to come by.

Loughton_Monkey

For many people, using something like Vantage is a 'false economy'. Yes, 4% (3.2% net) is higher than, say, 3.1%. But only for a while. If putting money in at 4% means that you neglect to put it in the ISA for that tax year, then that opportunity for tax free interest for the next 25 years+ has gone forever.

Hence for longer term savers are well advised to use ISA's.

The only exception to this is those with Offset Mortgages. These are wonderful things. If, say, you have an offset mortgage at 4%, then you can happily ignore ISA's completely because you can throw in as much as you like - no £5,340 limit - and receive 4% net. So the same as 5% in an ordinary savings account and 4% in an instant ISA. And it is for the long term too [obviously providing you have a long term still to go on it.]

I am in the lucky position where my offset is only 1½% and so I do it the other way. I took out all the offset (it was 100% offset) and invested it at 3.85%. With an Offset, you win at almost any interest rate. Were I to be in the position of having a new-ish ordinary mortgage - say £200K+ with 15 or more years to run , I would happily re-mortgage at a similar (or even fractionally higher rate) on an offset and be absolutely quids in.

Consumerist

Loughton_Monkey wrote: »

. . . Yes, 4% (3.2% net) is higher than, say, 3.1%. But only for a while. If putting money in at 4% means that you neglect to put it in the ISA for that tax year, then that opportunity for tax free interest for the next 25 years+ has gone forever. . .

Quite agree but it was a good place to store/build next year's cash ISA funds.

tara747

Loughton_Monkey wrote: »

For many people, using something like Vantage is a 'false economy'. Yes, 4% (3.2% net) is higher than, say, 3.1%. But only for a while. If putting money in at 4% means that you neglect to put it in the ISA for that tax year, then that opportunity for tax free interest for the next 25 years+ has gone forever.

Of course. That's why I do what Consumerist does. My ISA was full, so I use the Vantage a/c, plus Santander (5% current a/c plus First Home Saver) and whatever else I can for non-ISA funds. I always use up my ISA allowance in full!

Consumerist wrote: »

Quite agree but it was a good place to store/build next year's cash ISA funds.

tara747

p.s. 27 June is the day when the 4% interest rate tier disappears - set a date in your diary to move money out of Vantage so you only have £5,000 or less in yours!

Nessie23

AndiW wrote: »

I have a 2% e-ISA with natwest and want to make sure I am getting the best rate which I am probably not as I just got the savings accout first because natwest holds my current account.

I think it hasn't been mentioned yet, but you could consider tranfering you old ISAs (such as the Natwest e-ISA) to another provider giving you a better interest for example 3% and instant access.
Have a look at MSE's article http://www.moneysavingexpert.com/savings/cash-isa-transfers

Nessie

pqrdef

Loughton_Monkey wrote: »

For many people, using something like Vantage is a 'false economy'. Yes, 4% (3.2% net) is higher than, say, 3.1%. But only for a while.

If it were available indefinitely, it would be higher indefinitely.

Loughton_Monkey wrote: »

If putting money in at 4% means that you neglect to put it in the ISA for that tax year, then that opportunity for tax free interest for the next 25 years+ has gone forever.

The non-ISA route still wins so long as there's always an edge. So long as you can always get all your accumulated savings into an account that pays 0.1% more after tax than the best usable ISA, you stay ahead.

The killer is that the ISA-beating rates tend to be available only for limited sums of money or with awkward conditions attached. With the market as it stands, one would do very well to stay ahead enough of the time with enough of the money.

But the banks are always looking for ways to keep more of the ISA tax saving for themselves and pass less on to the customer. And the Treasury could decide at any time that it can't afford tax breaks any more, as our economic plight worsens (who says it won't). The ISA advantage is considerably oversold and it could easily turn out that we might as well not have bothered.