Whats the best way to save in layman's terms!

theickleone

Hi i have been reading on the other savings forum about the limited offer fixed rate at abbey national and i was just wondering if any one could please explain which is better to go for this or a mini ISA? I get confused by all the jargon and rates etc. Basically I want to put between £100-£200 a month in some kind of high interest account with a look to saving up a deposit for a house.

I would be very grateful of any explaination in layman's terms!!!

Reaper

The first question is do you pay income tax? I'll assume for this explanation that you do pay tax at basic rate. If not then ignore everything below.

Right - you asked for a very simple answer so here it is: The cash ISA is better.

Now to dive into more detail to explain why.

The Abbey monthly saver you refer to supposedly pays 6.5% interest. Actually that is taxed so the real figure is only 5.2%.

Also there are lots of nasty conditions. You HAVE to contribute each month or you get penalised. If you want to withdraw any money you will also get penalised.

A cash ISA, on the other hand, lets you put in as much or as little as you like whenever you like as long as you do not add more than £3000 during the year (note that limit will be dropping in a couple of years but is ok for now).

You can also take the money out again whenever you want with no penalty.

Also a cash ISA is not taxed so whatever rate you see advertised is the one you get. e.g. the Abbey National postal cash ISA pays 5.35%.

In summary the cash ISA pays more and has less traps in the small print.

theickleone

I do pay tax. Just like to say thanks for the honest and simple advice you provided, it made a refreshing change. I will be looking to open a cash isa as soon as possible. Thanks.

Robert_Sterling_3

Regularly