Please help me compare total interest

Jevvers

I'm trying to decide between M&S instant access cash ISA at 3% and Principality regular saver ISA at 4%.

I don't have a lump sum at the moment but I will do in October when my First Direct regular saver 8% account ends.

Principality does not allow paying in more than £470 in a month except for in March when you can top up to the ISA limit. M&S allows a lump sum at any time.

So my question is am I better off depositing monthly at 3% but with an earlier lump sum deposit? Or monthly deposits at 4% and drip feed my FD money in from October?

How do I work out the total interest in each case for this situ?

Thanks!

psychic_teabag

How much will you be depositing every month, and how big is the lump sum ?
Would Principality allow you to transfer in October, to an instant-access ISA which would let you deposit the remainder, or would there be a penalty ?

psychic_teabag

Oh, one other option : if you are a basic-rate taxpayer, any taxable account offering 4% will beat the M&S ISA at 3%. (I think Principality instant-access ISA is 3.1%)

You could, say, use Monmouthshire BS flexible saver @4% to take monthly deposits until October, giving you a second lump sum to transfer into an ISA any time you want. It allows 4 withdrawals, and lets you stop paying (but you'd have to leave the account open until maturity to receive the 2% bonus part of the interest.)

Jevvers

Ah yes some figures would help. I'm planning £300pm and a lump sum of £3600. No penalties afaik.

In your second post do you mean to do that instead of an ISA and then join together two lump sums to pay into an ISA? That's a thought, I hadn't considered that.

psychic_teabag

Okay, so if you go with M&S @ 3%, you'd be paying 300pm for 6 months then dropping in a lump sum of 3600. For the first 6 months, you have an average of 900, so that's about 900 * 0.03 * 6/12 = £13.50, then for the second 6 months you have a fixed amount of 5400 so that's 5400 * .03 * 6/12 = £81, so a total of around £95. (Ignoring any compounding from monthly interest, etc)

With Principality @ 4%, it's presumably 300pm for the first 6 months, then 470pm after that. We can say that's the same as 300pm for a year plus 170pm for 6 months.
First bit is average balance of 1800 for a year = £72. Second bit is average of 510 for 6 months = £10.20 , with a total of around £82.

That suggests M&S would be better - hope someone checks my figures since I tend to get a bit careless.


Yes, second post was suggesting building up lump sum outside the ISA using a second high-interest regular saver, then depositing the lump sum into the ISA. That often works out as a better tactic that saving monthly direclty into an ISA. I was thinking you could put the whole lot in in October, but since Monmouthshire (or wherever) at 4% would still be beating the ISA, may as well carry on until the end of the year, depositing into ISA at the last minute.

Putting 300pm into a regular saver at 4% for a year would give £72, before tax. In October, you could either put the first regular saver straight into the ISA, or you could drip-feed that into the reg saver too, taking it up to £1000 per month for a few months. And presumably you'll want to start another regular saver at First Direct going. Lots of options !

There are other regular savers offering more than 4% - I like Monmouthshire one because it's flexible over deposits and withdrawals, and generously allows up to £1000 pm.

psychic_teabag

Oh - hang on - I forgot to take into account the interest you could be earning on the matured regular saver while it's waiting to be dripped into the ISA. Call that an average of £1800 for 6 months at 3% = £27 before tax, or £21 after tax.

That makes the Principality approach slightly better than M&S, I think.

Jevvers

Thanks Psychic T, that's helpful. I thought the higher interest would work out better despite it being slower to take effect, as 1% is quite a lot, but thanks for confirming it. Also I hadn't got as far as thinking I could earn two lots of interest while I was drip feeding so that's a great point.

I'm going to double check all the small print and then go for it.

psychic_teabag

One minor detail is that Principality will penalise early access (lower interest rate if you don't complete the term), so if you might need early access, need to decide how much that's worth to you.

But that's perhaps less of a concern for you since you'll have the lump sum appearing in October and lasting for a while.

Jevvers

After all that, I have just opened the Principality instant access cash ISA at 3.1%. I decided to forgo the better interest rate of the regular saver for much higher flexibility and online account management.

And this way if anything better comes along I can transfer out with no penalty.

Thanks again for your help

Jevvers.