Better than a Savings Account?

hermante

bubbles0169 wrote: »

i understand the isa is tax free, does that mean if i put money into current account i will be taxed?
sorry if i seem thick, i need things explaining a few times to grasp it!

You get taxed on the interest that your money EARNS, not on the money itself. If you have £1000 in a savings account for a year and it earns £30 interest, then you pay tax on the £30. You don't pay tax on the £1000.

If your bill is £1000, then you move £1000 to the current account. Now it starts earning interest in the current account. The money will only be there for a few days, maybe it might earn 10p while it is sitting there. You will need to pay tax on the 10p.

bubbles0169

aha! well after all this searching i think i have found there to be 'no credit interest rate on my current account', its with lloyds and all i can see is an interest with classic vantage not just classic which is what i have

psychic_teabag

You may as well ask for vantage to be added : as far as I know, it has no downside, and it might give you some interest. If you don't meet the conditions for vantage in any given month, you just don't get the interest.

But you should probably ask them if there are any downsides before enabling the feature. eg higher overdraft fees, or something.

bubbles0169

I didn't look into it but i thought you might have to pay, if i had it added on id get taxed on the interest the£ 2500 +would earn though, how much would it be do you know? I'm a basic rate tax payer

psychic_teabag

It's better to earn some interest and pay tax on it than not earn any at all :-)

It wouldn't be worth putting money in the account just to qualify for some interest, since you can get interest at a higher rate elsewhere. But if you keep a healthy balance in your current account anyway, may as well get interest on it.

bubbles0169

If my calculations right it should be around the £10 but ill get more back, il look into it and let you know if theres a catch!

vacheron

Another thing to remember about ISA's is that if you ever end up paying higher rate tax then your interest will be taxed a further 20 percent.
This means that you would then need to find a taxed savings account which pays 60% more than the ISA just to break even.

It's around those times you start to wish you had slowly built up a a tidy sum inside the tax free wrapper in previous years.

aidso

If I end up in the 50% tax band then a 3% ISA will be the least of my worries