ISA vs Savings Account Advice

bigtel_2

Hi all,

Hopefully this should be an easy one.

I have just over £6,000 in my nationwide e-Savings Plus which is Gross interest rate 2.00% Net interest rate 1.60%

I'm getting Married in September so will be using all of this money around August.

Just looking at ISA's, is it worth putting £5,760 into this ISA...

http://www.nationwide.co.uk/savings/cash_isa/flexclusive_isa/default.htm

(2.50% AER tax free)

And when I take the money out in August would I have gained more in interest than my savings account?Thanks

innovate

Well there's a clue in the interest rates.

Outside an ISA, you pay 20% tax on the interest you get, so your 2% account only yields 1.6%. That compares with 2.5% in the ISA.

But of course you can only put £5,760 into the ISA. You could put the rest into a FlexDirect, maybe?

bigtel_2

That's an option for the rest and anything else I save in between. Thanks!

psychic_teabag

I think it partly depends on what you'll be doing after August. If you will build your savings back up again, there's a case for not using your ISA allowance for now - if you put in your full allowance now, then withdraw it, you cannot replace it. (Well, there is one convoluted way you can do it, but you probably don't want to get there...) While there is a clear short-term advantage in the tax-free interest for the next 4 months, ISAs really come into their own when you get tax-free interest for years to come.

A compromise might be to put, say, £3000 in the ISA, and spend the non-ISA money first. Then you still have £2760 allowance to use after the big day. (In addition to whatever allowance your new partner will have.)

Of course, you will have a new ISA allowance next year. A possible better strategy for your savings after September would be to put them in a (taxable) regular saver, transferring over to an ISA when it matures after 12 months.