High Interest Savings or ISA

imation_2

Hi,

which is better in terms of interest gained. A regular saving account giving 7.07% or a cash isa giving 5.15%. These are both deals from the hailfax.

blinko

ISA because you wont get taxed

7/12*20 should give you what you will get after tax

imation_2

Doesnt the regular saver at 7.07% give an effective rate of 5.51% after tax at 22%. That is 7.07 * (1-0.22).

blinko

or if you want a better rate go to HSBC you get 8% for a regular saver

imation_2

Ok, but the question is which is the better investment in terms of interest after tax.

The regular saver at 7.07% from Halifax or an ISA at 5.51%?

fairenoughclough

Are you putting in a lump sum £3000 or £250 per month into the ISA

Reaper

Actually with savings I believe they only apply 20% tax (if you are a basic rate tax payer).

So: 7.07% * 0.8 = 5.66%

That means it is fractionally better than the ISA.

BUT, the ISA has far less conditions on it.

jimclark1967

The 7.07% will be taxed at 20% giving you a net rate of 5.66% which is higher than the 5.15% from the ISA. Remember, however, that you can only put £250 a month in to the regular saver so you only get the full 5.66% on the first £250, 11/12 of that on the next £250 and so on.

For a comparison, £3000 lump sum in the ISA for 12 months would grow to £3158 after 12 months whereas £250 a month into the regular saver would only be £3079 after 12 months.

In other words, the regular saver accounts are good, and are certainly the first thing to go for once you've used your ISA allowances and can "drip feed" them from another savings account (to maximise overall interest earned) but they're not the get rich quick scheme the marketing would suggest

imation_2

fairenoughclough wrote:

Are you putting in a lump sum £3000 or £250 per month into the ISA

I intend putting in a regular sum...say £200 per month.

Walletwatch

Remember however, that an ISA allowance will lapse when the end of the financial year is up, and that will mean you lose a perpetuity of tax-free income for good. You need to tag a value to this, when you make a comparison.

fairenoughclough

Walletwatch wrote:

Remember however, that an ISA allowance will lapse when the end of the financial year is up, and that will mean you lose a perpetuity of tax-free income for good. You need to tag a value to this, when you make a comparison.

Unless of course some politicians change the rules !

In pure monetary terms the ISA represents the worst return over the guaranteed period, if however you are looking at long term savings then under the current rules it looks like a potentially safer bet.

However if it for the short term, take the money and run.