ISA & e-savings combinations

FatMandy

Hi all,

I have an online savings account with Natwest which is currently earning 5% AER.

http://www.natwest.com/personal02.asp?id=PERSONAL/SAVE_AND_INVEST/SAVINGS_ACCOUNTS/INSTANT_ACCESS/E-SAVINGS

I have about £3000 in it at the moment, and I try to add £200-£500 per month.

Would I be better to move £3000 to an ISA (Egg @ 6.05%) and continue my e-savings from scratch, or am I better leaving the whole lot in my savings account.

OR - is there a better solution altogether???


Cheers

debbie42

FatMandy wrote: »

Hi all,

I have an online savings account with Natwest which is currently earning 5% AER.

http://www.natwest.com/personal02.asp?id=PERSONAL/SAVE_AND_INVEST/SAVINGS_ACCOUNTS/INSTANT_ACCESS/E-SAVINGS

I have about £3000 in it at the moment, and I try to add £200-£500 per month.

Would I be better to move £3000 to an ISA (Egg @ 6.05%) and continue my e-savings from scratch, or am I better leaving the whole lot in my savings account.

OR - is there a better solution altogether???

Are you a tax payer? If so, an ISA would give you a much better return. It would anyway at the (rather poor) 5% rate: there are much better savings accounts around at the moment. There's a sticky thread on this forum about best ISAs, and also I think one on savings accounts in the parent forum.

FatMandy

OK, so let's compare these hypothetical situations:

1. I have £3k in my e-savings account (5%AER), I add £500 per month.
2. I have £3k in my ISA (6.05%AER) and £0 in my e-savings account. I add £500 per month to my e-savings.

Where would I be in a years time in each situation?

I've tried to work this out myself but just confused myself!

Just to make it more confusing - the ISA pays interest annually and the e-savings pays it monthly!!!)

debbie42

Are you a tax payer? If so, at what level? It makes all the difference to the returns.

FatMandy

Yep, afraid so!

Normal rate...

kingmonkey

The ISA option would be the best. It has a higher AER and is tax free!!!


Option 1 after 1 year: £9248.11 interest earned £248.11

Option 2 after 1 year: £9310.14 interest earned £310.14

masonic

The difference between the two scenarios is £3000 in an account paying 4% net or an ISA paying 6.05% tax free. In a years time you would be just over £60 better off with the ISA.

Ian_W

FatMandy wrote: »

I have about £3000 in it at the moment, and I try to add £200-£500 per month.

If you put the £3K in an ISA you might also want to consider paying your monthly savings into a better paying Regular Saver account too.

Many are limited to an amount, typically max £250pm or a duration, typically 12 months - but YBS have one that isn't time limited and you can deposit anything from £10-£500pm. You only get one withdrawal a year though but you could use it to fund next years ISA. It pays 7%pa which is 5.6% net of BR tax or more than you're getting gross at the mo.
Details HERE.