ISA or Regular Saver?

DeanMB

I currently have £3,500 sat in an ISA at Barclays with an interest rate of 2.25%. This obviously isn't the best place for my money as the rate isn't great, but my question is whether or not I would be better off with a Regular Saver or an ISA account?

With the ISA account, my £3,500 will be growing by £78.75 over the next 12 months, correct?

3500 x 0.0225 = 78.75

However, could I be in a better position if I were to open a regular savings account? Looking at the guide on MSE, I could open a First Direct current account and then their savings account which offers a rate of 6%. This would mean that my £3,500 will grow by £210 over the next 12 months, correct?

3500 x 0.06 = 210

From this I'd have some tax to pay, but I'm not sure how much that would be - surely it would leave me better off than the ISA would?

I'm not good with this kind of thing at all so if somebody could tell me whether or not what I've worked out is correct then that would be great.

Thanks!

Masomnia

'Fraid not, because you won't get 6% of the full amount, as the 6% is if you had the full amount in for a full year. As you have to drip feed the money in you only get a twelfth of 6% of whatever you can put in for the first month and so on.

Also if you're a tax payer you won't get 6% as you'll pay tax on the interest, which you won't have to in the ISA.

DeanMB

Masomnia wrote: »

'Fraid not, because you won't get 6% of the full amount, as the 6% is if you had the full amount in for a full year. As you have to drip feed the money in you only get a twelfth of 6% of whatever you can put in for the first month and so on.

Also if you're a tax payer you won't get 6% as you'll pay tax on the interest, which you won't have to in the ISA.

Right, so let me work this out..

Forget the tax for now - if I were to deposit £300 in month 1, then at the beginning of month 2 I'd have 106% of £300? Then I'd pay another £300 in and get 106% of the total amount?

Also, do you know how what percentage of tax I would get charged? I'm earning under 10k and in part time education

AndyPK

you can only put

£300 in per month so you won't be earning interest on the money while waiting to put it in.

and as you say there is tax, so 6% means 4.8% net

AndyPK

tells you on their web site

• if you saved £300 per month for 12 months, you'd receive returns of approximately £117 gross (£93 net) in interest after 12 months. Interest is calculated daily and paid on the 12 month anniversary after account opening

DeanMB

AndyPK wrote: »

tells you on their web site

So that's still better than my ISA? Only by £15, but still?

EDIT: Unless there's a charge for the current account, which I haven't looked at yet.

Masomnia

DeanMB wrote: »

Right, so let me work this out..

Forget the tax for now - if I were to deposit £300 in month 1, then at the beginning of month 2 I'd have 106% of £300? Then I'd pay another £300 in and get 106% of the total amount?

Also, do you know how what percentage of tax I would get charged? I'm earning under 10k and in part time education

You might not pay tax, depends on what you earn, it'll be close.

For the first £300 you'll get 6% for the year.

For the second £300 you'll get 11/12ths of 6% as you'll have it in for 11 months.

Then you'll get 10/12ths of 6% for what you put in in the third month as you'll have that £300 in for 10 months.

And so on. The quoted interest rates are assuming you have the balance for a full year, so your total return works out at less than 6%; however you're still better off moving money from the ISA to the regular saver, even though you won't get £210.

So you can't compare 6% in the regular savings account with 2.25% in an ISA, as you aren't comparing like with like.

AndyPK

so you would have more money, and that is fine, if you want to spend the money in 1 years time.

However if your just investing for the future you would be better having it in an ISA.

Also note:

• no partial withdrawals. If the account is closed before the end of the fixed period, interest will be paid at the standard Savings Account variable rate.

AndyPK

also £300x12=£3600 so you need to invest another £100

DeanMB

Masomnia wrote: »

You won't pay any tax.

Are you sure? I do pay tax on my wage, but only a slight amount - just over 1% of my salary.

Masomnia wrote: »

For the first £300 you'll get 6% for the year.

For the second £300 you'll get 11/12ths of 6% as you'll have it in for 11 months.

Then you'll get 10/12ths of 6% for what you put in in the third month as you'll have that £300 in for 10 months.

Oh okay, let me recalculate again so I can get a better understanding of it

Masomnia wrote: »

So you can't compare 6% in the regular savings account with 2.25% in an ISA, as you aren't comparing like with like.

Yeah, you're right. I didn't think of it like that at all.

One final thing, I've looked at the conditions of the First Direct current account and found the following condition.

If after six months you do not pay £1,000 per month into your 1st Account you may have to pay a fee of £10.

First of all, what do they mean by "may"? Either I will, or I won't, right?

Secondly, could I transfer £300 from a separate account into this account before moving it into the saver? Combining this with my wage of £750, I'll be hitting the £1000 threshold, right?

Masomnia

Sorry yeah I edited my post, if you pay tax on your wage you'll be paying tax on savings too, you'll get 4.8% annually from the regular saver.

I reckon in that case you may as well stick with the ISA. Especially if you may need to withdraw the money, and you lose this year's allowance.