ISA v santander 123

tinsy

Hi,
i currently have just over £5000 in Santander cash ISA. The rate has just dropped to 0.5%! Having just missed out on the Cheshire and Virgin ISAs (seemed to have been withdrawn) just wondering, as i have not contributed this financial year, would i be better to move it to my 123 account and get 3% until a better ISA rate comes along. It is unlikely i will be able to use this years ISA allowance.
Many thanks

innovate

The max you will get in a year for £5K in a 123 is £120 after basic rate tax. More likely £96 because it costs £2/mth if you don't have cashback-earning DDs that make at least £2/mth. Though you could make a bit more in cashback if you have further DDs.

A 2% ISA will pay you £100 a year, keeping the option open to grow your balance to £10760 this year.

Your decision.

psychic_teabag

You could put your 5k in a Lloyds or BOS vantage current account - 3% interest with no fee.

Though you say "my 123" suggesting you already have one. In which case you would be getting all 3% on the balance you move in.

One option is to move it to a 3% account now, and at the end of March consider whether to move it back into an ISA, (a) when rates might be higher, and (b) before the allowance is lost.

innovate

psychic_teabag wrote: »

Though you say "my 123" suggesting you already have one. In which case you would be getting all 3% on the balance you move in.

Only if the balance stays between £3K and £20K, £500 a month get paid in, at least 2 DDs exist, and the cashback from the DDs covers the £2.

psychic_teabag

As in another thread, I disagree with the detail that the cashback from the DD's has to cover the fee in order for additional money added to the account to earn exactly 3% interest. Since we're talking about £5k, the 3% threshold is already satisfied, but yes, I was assuming the other criteria for earning interest at all were satisfied.

AndyPK

You don't need cash back to get interest, but if you don't have it the account fee is coming out of your interest.

innovate

AndyPK wrote: »

You don't need cash back to get interest, but if you don't have it the account fee is coming out of your interest.

Exactly. And that means you might not get 3% AER.

psychic_teabag

I'm not going to go on about this, but if you already have the 123, you are already committed to paying the fee. Any *extra* money you add to the account earns *exactly* 3%.

Suppose you have 5k in a 123 account earning interest (so all other criteria are satisfied). You earn 150 interest, pay 24 fee, and get whatever cashback is coming to you (or zero). If you add 5k more, you earn 300 interest, still pay 24 fee, and get the same amount of cashback. The extra 5k you added is earning exactly 3% interest.

If you put the additional 5k into a different account paying 3% interest (eg Lloyds vantage, where you satisfy the funding criteria) you'd get the same interest. Clearly in this case, what you put into Lloyds has no impact on the 123 account. Because interest is linear, adding it to the 123 account gives exactly the same result as putting it in 123.