ISA or fixed rate savings account?

skullmaster

I currently have 70k in savings.

- I have 5 years to sit on the entirety of this money, 2.5 of which whilst being a student/tax free.
- The other 2.5 I'll hopefully be working a job earning around 25K.
- I then hope to buy a house using all the money.

I want to maximize the return over the 5 year period. I'm not interested in longer term saving at the moment.

What should I consider in my current position? Begin using my ISA allowance now or move everything into fixed rate savings? Will the money I'll pay in tax (in a fixed rate savings account over the 2.5 years of employment) be worth not using ISAs now?

I am currently thinking of taking advantage of the Investec 4% account for 2 years and then reconsidering my options.

Does that make any sense...? _pale_

Linton

I suggest that you put your money in a 3 year fixed rate account and once you are in a fully taxed year put it in an ISA. You can set up the fixed rate account so that interest is paid gross - just ask when you set it up.

qpop

Start a fixed rate ISA for each tax year with the balance in fixed rate savings accounts.
By the end of your tax free period you'd then have ~£15,000-£20,000 in ISA.

Whilst you're a non-taxpayer elect for the interest in the fixed rate accounts to be paid growth.

Linton

Linton wrote: »

I suggest that you put your money in a 3 year fixed rate account and once you are in a fully taxed year put it in an ISA. You can set up the fixed rate account so that interest is paid gross - just ask when you set it up.

Sorry I missed the 70K bit - do what qpop says!

SnowMan

Welcome to the forum.

First of all I would say fixed rate accounts and ISAs are not exclusive things. So you could for example use this year's cash allowance and on 6th April next year's cash ISA allowance to invest in a fixed rate cash ISA leaving you with about 60K left over.

Obviously if you put the rest in a non ISA fixed rate account you may not be able to use future ISA allowances because the savings may not be accessible when you need them.

Because of the uncertainty of when you will need the money I would be very careful about tying your money up for too long a period.

And I would be wanting to make sure there was enough money available to use each year's ISA cash allowance. Yes you may buy a house but who can predict the future so best make use of tax free interest now (and clearly you will be saving tax when you start earning 25K) and future tax free interest if your plans change or until you buy a house.

The advantages of fixed rate accounts are that you don't have to worry about continually moving money to get the best rate and you might just do better than keeping the money in easy access accounts.

Of course fixed rate account interest rates are currently higher than easy access rates but that partly reflects that interest rates may increase very slightly over the coming years.

So if you are prepared to keep moving money to get the best rates about there is a good argument also for keeping money in easy access accounts. Each to their own.

Also it gives you the chance to get extra interest by using for example regular saver accounts that occasionally offer very good rates of interest.