ISA or fixed rate bond?

SJP21

Hi
I am a bit confused. I have approx £2750 I want to lock away for 2 years. Am I better off with a cash isa giving me 2.1% interest tax free or to open up a fixed rate bond at 2.10% interest which is taxed? Could someone please help. I can't work it out. Many thanks for all suggestions.
S.

ColdIron

Are you a tax payer?

opinions4u

Assuming you are a taxpayer, the ISA (which doesn't have a tax bill attached) is better.

What were you finding confusing?

Vortigern

2.1% is exactly the same as 2.10% so use the ISA and you won't have any tax deducted.

Why do banks use this insignificant trailing zero in their interest rates? Are they trying to catch people who think 2.50 is bigger than 2.5?

My old maths teacher would say "it's two point five oh, not two point fifty!"

opinions4u

Vortigern wrote: »

Why do banks use this insignificant trailing zero in their interest rates?

Maybe they are required to show rates to 2dp.

Are they trying to catch people who think 2.50 is bigger than 2.5?

Nah.

SJP21

Thanks everyone for coming back so quickly. I am a taxpayer and yes I was finding the 2.1 and the 2.10 confusing. Doh!
I will go for the ISA.

WoodM

Good choice SJP21. ISA should always be the first point of call, especially if it's giving out the same rate!

ColdIron

A couple of points to muddy the waters if you are only looking at 2 years

The ISA is presumably variable rate so could go down although it would have to reduce quite a bit before the fix became competitive

You might make more money with a couple of current accounts paying 3% and 5% even though they are taxed although they are more complicated to set up

SJP21

I feel very dense but I have also found an account which pays 3.05% over 5 years for another account I need to set up. I don't really understand the tax thing but would I still be better off with a 2.1% ISA?
Thanks

ColdIron

All you need to do is take 20% off the interest rate or the interest amount (multiply it by 0.8)

In this case the 3.05% before tax is 3.05 * 0.8 = 2.44% after tax so is better than the ISA but the issue here is you would be locking away for 5 years and interest rates could well improve over that period

Personally I would be happy to fix for 2 years, maybe 3 (but would need more than 3% to persuade me) but I feel 5 years at 3.05% is a bad deal

SJP21

Thanks. You seem to know what you are talking about. I have had a look at the rates and the account I found at 3.05 is for 5 years only. If you think it is a bad idea maybe I would be better off combining the two amounts and putting them into a fixed rate ISA for 2 years which is when I will need half the money and re-thinking what to do with the rest for the following 3 years.