Regularly Beat the Best Savings Account Rates Discussion Area

Kazza242

yinhong wrote: »

For the last couple hours, I've been peturbed by this post. His argument seems to make sense, so is it better to go for a regular saver?

Dyson wrote:

In the article, it says that you should use your ISA Allowance first, but if a basic-rate taxpayer is getting 8% interest, tax on this would be 1.6%, leaving Net Interest of 6.4% which beats all but the very best ISAs.

This would only apply to a basic-rate taxpayer, who had no savings to begin with and was just starting to save regularly, but surely the regular saver would be better in this instance?

It depends. If you already have a £3,000 lumpsum available to save at the outset then it is better to go for an ISA as you can deposit it all at once. Where as the most regular savers paying rates of 8% and above usually only permit £250 per month to be paid in. Therefore, you don't benefit from earning a high rate of interest on the whole balance from the beginning.

Also Dyson seems to be only thinking about the amount of interest one can earn in the short term. Remember that most regular savings accounts paying 8% and above last for only 12 months. Then the regular saver is usually converted into a lower interest paying account. The money in an ISA, on the other hand, can be left to accrue tax free interest for years - so is a better choice in the long run. The other point is why give the taxman a cut of your interest when you don't have to? By using your cash ISA allowance each tax year you can build up a sizable lump sum earning tax free interest. If you don't use your ISA allowance you lose it forever, so I think it is always best (especially when thinking long-term) to fill your ISA first before opting for a regular saver.

yinhong

Thank you. That's made it a lot clearer for me. I just needed to determine whether I could pay a lump sum or use my income to save up...

yinhong

Kazza242 wrote: »

.....If you don't use your ISA allowance you lose it forever.......

I don't fully understand. I'm 21 now but I have never opened an ISA account before. Am I still eligible to open one now?

Are you implying that once you've opened an ISA account, you must continue to pay at least some money into it each year, otherwise you will never get the allowance again?

mary

You are entitled to open an ISA each tax year (April - April). Currently it is for £3,000. You can put in just £10 if you want, but to get maximum benefit, and you are able to you can put in the maximum of £3,000. I believe that figure will increase next tax year.

What Kazaa means by "you will lose it forever", is the following. If for instance last tax year (06-07) you only managed to save £1,000 in the ISA. you will not be able to pay in the remaining £2,000 this tax year for the shortfall you had last year (if only you had the money at the time). That opportunity is now closed. However, there is nothing to stop you opening a brandnew ISA this tax year (07-08) and putting in the full amount of £3,000.

Yes, age 21 you can open an ISA any time you like.

yinhong

Thanks Mary, that's completely cleared it up for me.

grownup1

yinhong wrote: »

I don't fully understand. I'm 21 now but I have never opened an ISA account before. Am I still eligible to open one now?

Are you implying that once you've opened an ISA account, you must continue to pay at least some money into it each year, otherwise you will never get the allowance again?

Don't worry - it's just that you can only save up to £3000 cash in an isa every tax year. If you miss a year you can't use your previous year's allowance retrospectively. As long as you leave any money in the isa account the interest will continue to be sheltered from income tax even if you take a break from paying in.

Kazza242

yinhong wrote: »

I don't fully understand. I'm 21 now but I have never opened an ISA account before. Am I still eligible to open one now?

Are you implying that once you've opened an ISA account, you must continue to pay at least some money into it each year, otherwise you will never get the allowance again?

yinhong - As mary has explained, at the beginning of each tax year (starting from April 6th each year) we all receive a new cash ISA allowance of £3,000 (increasing to £3,600 from April 6th 2008). As each tax year ends on April 5th each year we have until then to use our cash ISA allowance. If we don't use it by then we lose that years allowance. However, there is nothing to stop us making use of our new allowance once it becomes available to from April 6th each year. We are currently in the tax year 2007-08 so you can deposit up to £3,000 now.

Most mini cash ISA's can be opened by savers from aged 16+.

Check out this thread: Mini Cash ISAs: The Best ISAs Currently Available List which should help you to choose one.

Also check out Moneyfacts.

Ivana_B_Rich

Hello all,

Can anyone help me. I've used this year's ISA allowance, my extra savings are in a ICIC account and I'd like to drip feed them in to a Yorkshire Bank Regular Saver. However, I may need to close the account within the next few months. If I had to close the account would I get less than the 7%?

Would it be better to not start a regular saver if I'm not sure I can commit to the full term

Thanks

DeepSporran

Ivana_B_Rich wrote: »

Hello all,

Can anyone help me. I've used this year's ISA allowance, my extra savings are in a ICIC account and I'd like to drip feed them in to a Yorkshire Bank Regular Saver. However, I may need to close the account within the next few months. If I had to close the account would I get less than the 7%?

Would it be better to not start a regular saver if I'm not sure I can commit to the full term

Thanks

Assuming you mean Yorkshire Building Society (not Yorkshire Bank), the regular saver is more flexible than most.

As long as you save at least £10 per month in at least 11 months out of 12, you get the full 7%, AND you're allowed to make one withdrawal per year.

So you could (for example) save £500 per month for 6 months (total of £3000) then withdraw £2999 (leaving balance of £1), and then save £10 for the next 5 months. You'd still get the full 7% paid at the end of the year.

Is it worth doing this though ?

Probably not in your situation.

Yorkshire pays 7%, ICICI pays 6.3 % I think. Difference is 0.7%.

Using my example, the benefit of using the drip feeding comes to less than than £5 (and that's before tax, and ignoring the few days interest lost each month while your money is in transit between the accounts.

However, if you think that there's only a slight chance of you needing to withdraw (most) of your money after a few months, it may be worth going down this route.

Ivana_B_Rich

Thank you DeepSporran