Which is better ...

a51_ufo

Regular saver at 8% or ISA AT 3.06% ??

Feel like I'm asking a stupid question but want to check my thinking. I know the ISA is tax free and the regular saver interest will be taxed at 20%. I don't have a lump sum but will be putting away a set amount every month.

qpop

The regular saver will be better if you don't have a lump sum.

8% AER - 20% tax = ~6.4% AER. 3.06% AER tax free = 3.06% AER.

The water is muddied if you do have a lump sum, in which case "drip-feeding" is the best method.

xylophone

http://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

a51_ufo

qpop wrote: »

The regular saver will be better if you don't have a lump sum.

8% AER - 20% tax = ~6.4% AER. 3.06% AER tax free = 3.06% AER.

The water is muddied if you do have a lump sum, in which case "drip-feeding" is the best method.

Thanks - that was my thinking also taking the 20% off the 8% leaving 6.4%!

All the advice is fill an ISA first so just wanted to check I wasn't missing anything obvious!

a51_ufo

xylophone wrote: »

http://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

Good calculator - thanks!

I have used an excel spreadsheet in the past but much easier here!

qpop

a51_ufo wrote: »

Thanks - that was my thinking also taking the 20% off the 8% leaving 6.4%!

All the advice is fill an ISA first so just wanted to check I wasn't missing anything obvious!

There should be a caveat to that advice.

Fill the ISA first if the interest rate is better once you have adjusted for tax.

First Direct is a great bank for customer service, as well (and I think they're offering £120 for joining them if you go through a moneysup link)

psychic_teabag

Tactically, the regular saver gives better interest for the next year.

Strategically, using ISA allowance this year means the money can be tax-free "forever" (or until the rules change).

Which is better depends on long-term goals for the money - if you'll be spending it soon, the long-term tax benefits matter less.

A viable combination is to build up a put using the regular-saver account, then move it to an ISA in a year and start over.

a51_ufo

psychic_teabag wrote: »

A viable combination is to build up a put using the regular-saver account, then move it to an ISA in a year and start over.

That's the plan!