Cash ISA or Santander 123?

jgoffe

The UK's top rate cash ISAs on MSE for example include Tesco at 2.3%, this appears to be less than the 3% interest (2.4% tax paid) on a Santander 123 account (with over £3000 in it), why would I bother to put £5760 now into this ISA, am I missing some point? Martin and everyone else keeps on about not losing your cash ISA allowance, but these only seem advantageous if you lock money in for 2 or more years. I don't want a regular savings vehicle just places to keep cash from my pension making a few quid and readily accessible. Comments?

Sensory

If you can fetch a higher return, then do so. In such a case I would only fill up your ISA allowance at the very end of the financial year. ISAs are generally the best due to their tax-free status, year after year. If you're able to continuously and consistently beat the best ISA's return year after year regardless of tax, an ISA may not factor into your savings. However, should there come a point in time where an ISA is indeed the best for you, you would have lost the allowances of previous years.

The Coventry BS Poppy ISA currently offers 2.6% interest and it's instantly accessible without penalty.

Herbalus

If you take into account the £2 fee on the 123 account this will cost you £24 per year, which on £5760 (the amount you would have in an ISA) would take the interest rate down from 3% before tax to 2.58% before tax, and therefore 2.064% after tax. If you have just this £5760 then the tesco ISA, or the Coventry BS Poppy ISA as listed above beats this.

If you want to use the 123 account for your direct debits that gain cashback such as water, council tax and broadband, that is a completely different question. Most people here report that their eligible bills on the 123 account make more than this £2 fee per month, in which case you will make more money here than in an ISA currently.

It is worth noting also that the difference of 0.1% between Santander 2.4% and Tesco ISA 2.3% is only £5 per year on a balance of £5000. Depends how much you want that £5!

badger09

This is a perennial question.

Sensory hit the nail on the head 'ISAs are generally the best due to their tax free status, year after year'.

Many of us who started saving when ISAs (or their predecessors) were first launched, now have over £80k sheltered from tax.

Of course, it is possible to have far more than that if you've made use of the full annual ISA allowance, and not just the cash element

gkerr4

i agree - it's good practice to put it into the tax shelter - but if you can outperform it through the 1-2-3 account then do so and put it in an ISA wrapper at the end of the tax year to secure the years allocation.

logie48

Herbalus wrote: »

If you take into account the £2 fee on the 123 account this will cost you £24 per year, which on £5760 (the amount you would have in an ISA) would take the interest rate down from 3% before tax to 2.58% before tax, and therefore 2.064% after tax. If you have just this £5760 then the tesco ISA, or the Coventry BS Poppy ISA as listed above beats this.

If you want to use the 123 account for your direct debits that gain cashback such as water, council tax and broadband, that is a completely different question. Most people here report that their eligible bills on the 123 account make more than this £2 fee per month, in which case you will make more money here than in an ISA currently.

It is worth noting also that the difference of 0.1% between Santander 2.4% and Tesco ISA 2.3% is only £5 per year on a balance of £5000. Depends how much you want that £5!

If you open a 123 account through a cashback website then at the moment, Quidco are giving you £55 for it. Surely this will cover the cost of your yearly 123 fee, plus give you an extra £21.

Herbalus

Point taken, topcashback and quidco make the 123 account extremely attractive, although the cashback is never guaranteed. Waiting for mine to track at the moment.

The point I was making was that on the max amount allowed in an ISA the £2 fee on the 123 account removes 0.4% unless you have direct debits that are eligible for cashback. It's more complicated than other accounts. £5670 will only get you 2.06% after tax without these direct debits, so if you just use this as an efficient savings vehicle you would need to use direct debits to combat the £2 fee.

helenjones833

Guys,

I realise this thread is quite old, but it appears the difference in potential earnings between the Santander and the best instant access ISA is now much higher than it was back in April: 2.4% from the Santander (assuming one can recoup the annual fee from cashbacks on direct debit payments, as Martin recommends) vs only 1.8% from the best ISA at the moment.

I'm looking to save a bit of cash until later in 2014 probably, it's unlikely I'll carry a huge amount forward through successive ISA years. So I'm tempted to jump through the hoops necessary to get on to the Santander and parking my money there for a while, rather than opening an ISA. Does anyone have thoughts?

badger09

helenjones833 wrote: »

Guys,

I realise this thread is quite old, but it appears the difference in potential earnings between the Santander and the best instant access ISA is now much higher than it was back in April: 2.4% from the Santander (assuming one can recoup the annual fee from cashbacks on direct debit payments, as Martin recommends) vs only 1.8% from the best ISA at the moment.

I'm looking to save a bit of cash until later in 2014 probably, it's unlikely I'll carry a huge amount forward through successive ISA years. So I'm tempted to jump through the hoops necessary to get on to the Santander and parking my money there for a while, rather than opening an ISA. Does anyone have thoughts?

If you're not looking long term (see my post 4 above) then go ahead and make the most of the higher rates available on current accounts. Santander 123 is a good one (you can have 2).

Nationwide Flexdirect even better for a smaller amount - giving 5% on up to £2500 for a year (no DDs necessary but monthly external funding of £1k)

helenjones833

badger09 wrote: »

Nationwide Flexdirect even better for a smaller amount - giving 5% on up to £2500 for a year (no DDs necessary but monthly external funding of £1k)

Wow, that's not bad! This may be a silly question, but would you get away with putting the £1k in each month and then taking it out again immediately? Because with the £2,500 limit there's not presumably much benefit to leaving extra money parked there.

Herbalus

helenjones833 wrote: »

Wow, that's not bad! This may be a silly question, but would you get away with putting the £1k in each month and then taking it out again immediately? Because with the £2,500 limit there's not presumably much benefit to leaving extra money parked there.

Yes. Leave a balance of ~£2500 in there, and then transfer £1000 in and out again every month. Alternatively, if you don't have that money in your other accounts, transfer £1000 out from Nationwide and then move it back in again. No problem.