Which savings account is best?

TCat

Dear all,

I have been made redundant and have £40,000 which I would like to invest in a savings account. I will need online access and be able to access funds each month without penalty.
Is a monthly or annual interest payment option better? Or does it not matter?
I've just found out that my current savings account is only 0.35% so I'm keen to move the money as soon as possible.

Thanks in advance for your advice.

Lokolo_2

TCat wrote: »

Dear all,

I have been made redundant and have £40,000 which I would like to invest in a savings account. I will need online access and be able to access funds each month without penalty.
Is a monthly or annual interest payment option better? Or does it not matter?
I've just found out that my current savings account is only 0.35% so I'm keen to move the money as soon as possible.

Thanks in advance for your advice.

For your situation, it sounds as if the AA instant access savings account might be appropriate, 3.2% interest and you can access your money whenever you need it!

However, it might be worth thinking about how much of your £40k you actually need access to, you could earn more interest by putting part of it into fixed rate savings and the other part into the instant access account.

Further details of the available savings accounts are on the banking/savings tab at the top of this page.

opinions4u

TCat wrote: »

I have been made redundant and have £40,000 which I would like to invest in a savings account. I will need online access and be able to access funds each month without penalty.

www.theaa.co.uk/savings. There's an easy access account there paying 3.20%. There's also a 1 year option paying 3.60% without access and 3.05% cash ISA thing too.

Is a monthly or annual interest payment option better? Or does it not matter?

Makes no difference EDIT: (unless your tax status is changing). Plump for the higher AER.

It might be worth looking at the bigger picture though. If you've paid tax on some of that £40k, making pension contributions with it might be a consideration - and getting tax relief on it.

psychic_teabag

Annual or monthly can make a difference when tax is considered. Eg if you might be paying tax at a higher rate next financial year, going monthly means you pay tax on some of the interest this year. If you might be paying tax at a lower rate next year, annual interest means you defer all the interest until next tax year.

EDIT: Some annual-interest accounts pay on a fixed day of the year, rather than on the account anniversary. So annual interest doesn't guarantee it would be deferred until next tax year.

Could also look out for notice accounts as a compromise between instant access and fixed. However, at the moment I'm not aware of any that are paying better than online instant-access accounts.

BrianD

Tesco Savings has a slightly lower rate 2.9% but makes payments same day to your bank account.

psychic_teabag

And tesco also allows payments to be set up for a future date. (well, it certainly used to with the old interface. I assume that hasn't changed.) So you can schedule one-off payments to coincide with known payments from your current account.

Tesco also allows payments to arbitrary external accounts, so you could pay bills directly from there, without having to transfer first to current account. (Many savings accounts will allow withdrawals only to a linked account which would typically be your current account.) But no direct debits, since it's not a current account.

Some savings accounts allow regular transfers to linked account. Not sure if tesco do - they didn't used to. So could arrange for a regular top-up from savings account to current account half-way through the month, for example.

If you're not tied to Halifax, there are some current accounts that pay interest when you're in balance.

EDIT: err... I think I meant to post this in a different thread.

atush

Do you need access to all 40K? Or would 20K be enough, and 20K in a timed deposit to gain more interest?

did you earn over your personal allowance before you were made redeundant? If so, you will pay tax on any interest. So I wold put at least 5340 into a Cash Isa.

TCat

Yes, I did pay tax at 40% since April 2011. Didn't realise that I would pay tax on the interest as I'm not currently working so thanks for the heads up.
I don't need access to all of the £40k, so I like your suggestion of the ISA.

calypso_rhapsody

Just to pick up on Psychic Teabag's point about annual v monthly interest - the point is that the interest is taxed at the point you receive it. So if you are a 40% tax payer in 2011/12 but most likely will be 20% in 2012/13 then best to have the interest paid in next tax year - so annual or an account with a payment date on or after 6 April 2012 will be best.

You said you were a 40% tax payer - it would be worth checking that you are not due a tax rebate as your tax rate will presumably have been calculated on the assumption you would earn at the same rate for the whole year. May have been sorted in your last PAYE - as i was self-employed from about 1980 on i am afraid i have rather forgotten how PAYE works!!

opinions4u

So are you saying that your redundancy payment is £47k, £30k tax free and £17k that has had £7k in tax deducted?

Putting that £10k in to a pension will get you the tax money back, albeit in to the pension too.

TCat

Thanks everyone for your advice and info, I appreciate it.