Best way to save on a small occupational income/pension

Spandude

At the moment all forms of saving with instant access have quite a low, mostly below inflation, interest rates e.g about 2.25% for Cash Isas. If, like my wife, you have a small occupational pension or wages below the single persons tax threshold of £9444.00 per annum but more than £500.00 a month. If you then open a Santander 123 account depositing this amount (£6000 a year) and then move three old cash Isas (about £16000) and move a couple of direct debits to the account to activate it you will receive 3% interest (upto £20000 limit) above £3000. This means, if you keep the account to near £20000 you will receive just over 2.5% interest with instant access. The question is, if the total yearly interest is about £600 will you be excempt from paying tax on it (i.e your total income is £6600 ).

CLAPTON

tax allowance for 2013-14 is £9440
for 2012-13 it was £8100

SavingFish

If your total taxable income from all sources (employment, savings, pensions, any other investments e.g. dividends from shares etc...) is only £6600 then no, you shouldn't have to pay tax on it.

The bank will automatically pay you interest with basic rate tax deducted. To get the tax back you can do one of two things...
- Fill in an R85 form and give it to your bank. They will then pay the interest in full (gross).
- Reclaim the tax by filling in a Self Assessment tax return at the end of the tax year.

I would strongly recommend the first option (tax returns are no fun, and the interest won't compound in the meantime).

One other point - I believe once you are over the £3000 threshhold, the Santander account pays 3% on the whole balance, so you should be getting 3% instead of 2.5%

(If you have anything above the upper £20000 limit, keep it somewhere else. Whether it's worth moving the money out of the ISAs will depend on both your current and future cirumstances).

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Disclaimer: I am not a financial adviser, none of the above should be taken as "Financial Advice". Information provided is believed to be accurate, but may include errors or inaccuracies. (Crazy that you have to cover yourself with such disclaimers but there you go.)

Spandude

Thanks very much for your reply.
The 2.5% was a rough estimate on the overall interest yield on about £20000, assuming no interest on the 1st £3000.