Santender 123 account or Isa

jimbotot

Your views Santander 123 paying 3% and cash back or an ISA paying 2.5% investing 5k potentially wanting access but may not need it

Many thanks

Jim

4$£&*(£$&*(!

Use the account for cashback as a day to day account. Use the ISA at 2.5% - that will give you £125 interest over a year, the 3% rate from Santander is taxable and you'll only get £120.

Geforce

I too recently had the same dilemma..

My thought process was simple;

It was much less effort to open a Santander 123 Account and keep all monies in the account rather than open an ISA to gain a few quid more over the year.

At leaast then I know my money is accessible from my card if required.

However, if you plan to use your ISA and top it up year on year - I'd definitely recommend doing that instead.

Personally I think there's better places to put "larger" sums of money...

(And of course, the 123 account is only really worth it if you set up all your DD's from it)

innovate

Exploit the 123 for now, then drop your funds into an ISA before the end of the 2013-14 tax year if the rates are still half decent. Big 'if' that one, though. If you are into cash ISAs for the long run, it might be worth a fiver a year to keep the interest tax free.

marathonic

If the 123 Account is going to have a varying balance throughout the month which, if it's your main account, is likely to be the case, you may be better off keeping your money in the account as opposed to the ISA (at least until the end of the year).

Say, for example, your pay goes into the account on the first and bills come out at varying dates through the month and your average balance of the account through the month is £400.

If you have £3,000 in the ISA at 2.5%, you will get £75 in the ISA and nothing in the current account (as the balance is below £1,000).

If you keep the £3,000 in the current account at 3% together with your average balance through each month of the year of £400, you'll get 2.4% after tax on £3,400 - or £81.60.

datostar

Last year I finally managed to get several Cash ISAs consolidated into the Santander ISA paying 3.3%. That runs out on 31st March and it will revert to their ISA Saver paying a max. of 2% on £25000 plus. Fed up of changing around every year I think I'll top it up to £25K on 6th April and use the 123 account as a feeder. That's permanently over £3000 balance so I'm getting the 3% there plus the cashback on 7 Direct Debits and I can live with the 2% tax free in the ISA which is still better than many instant access ISAs and savings accounts with less hassle.

innovate

That seems silly, to settle for 2% when you can get 2.5% at Santander, just for the cost of a phonecall to ask them to transfer your ISA to a 2.5% one. Or, if you can lock your money away for 2 years, go for the 3% one. With either option, you can still get the benefits from the 123 cashback and interest.

bsms1147

0.5% difference is £125.

Bear that in mind when you're deciding that a few minutes of your time is not worth £125.

datostar

innovate wrote: »

That seems silly, to settle for 2% when you can get 2.5% at Santander, just for the cost of a phonecall to ask them to transfer your ISA to a 2.5% one. Or, if you can lock your money away for 2 years, go for the 3% one. With either option, you can still get the benefits from the 123 cashback and interest.

I'd overlooked that one. Thanks. I'll change it over next week.

anotheruser

I'm in the same boat, but I think it'd be better off in an ISA account for now as I'll build on it every year, whether I fill the allocation or not.

Just deciding if I should go for the 2.5% or 3% as the difference is around £25, but I won't need the money for 2 years I shouldn't think.

NorthernChap

Hi all, first post so be nice! Been a long time reader but just joined up to ask a question about Santander and ISA and blow me if you clever people haven't already mentioned something similar.

For me though, it's a tiny bit different. I already have a 1-2-3 account which I use for our household direct debits and I have my salary paid into there and just transfer the odd hundred quid into another account as spends. Anyhow, the point being that there is about 2250 in there at the moment, this will drop when the direct debits go out on the 1st to something like 1250.

I also already have an ISA for this year which is paying 2.8% and has just the opening £5 in it. My plan was to put some money in there as savings, about 300 quid is what I can safely spare before the deadline this year.

So, the reason I'm on here (finally) - the question is, I think I'm better off NOT putting money into the ISA and I wondered if some clever folks could sanity check my thinking?

If I can keep the balance above 2k in Santander, then I'll be getting 2% interest which by my maths is £40 per year, minus 20% tax so £32 over a year. The £300 in my ISA would be tax free but smaller principle so would return £8.40 over a year, plus I would be getting 1% on the balance in Santander over a grand which would be let's say an average of £1500 so £15 - 20% tax is £12, so altogether £20.40 interest.

Am I right in thinking that the only real advantage of putting the money into an ISA before the current deadline would be if I'm likely to use my total allowance next year? Because I'm thinking that my best option is to scrimp and save a little until I can keep the balance in Santander permanently above 2k to take advantage of the rate, and THEN start to pay into an ISA next year. Or perhaps get over 3k in Santander before the ISA?

Anyone have any thoughts? Appreciate your help in advance!