ISA or regular savings - which to start with?

minerva_windsong

Firstly apologies if this should be on the ISA page and feel free to move it.

My fiance and I are currently saving up to buy our first home. We are lucky enough that we have money from an inheritance which will hopefully enable us to have a decent deposit, but we also want to try and save a bit more over the next six months to a year to make an even bigger dent in the mortgage. Again we're lucky enough that we can save around £1,000 a month between us if we're incredibly frugal, but the question is where we save the money!

I am considering moving to the First Direct current account as recommended on the best current accounts page, which I notice gives you access to the 6% regular savings. However, the maximum you can save in the first month is £300 (although it does apparently go up by £300 a month so in theory we could be depositing the whole £1,000 by month four but would have to find somewhere else for the rest).

The other option would be the Newcastle BS regular saver ISA at 3.02%, which allows you to deposit £500 a month, but obviously the interest rate is much lower. I can miss months with the Newcastle ISA - it just means a slightly lower overall rate - but not the First Direct saver. I also have some savings and a bit of surplus cash in my bank account that I could use to tide one or both accounts over.

So, considering all that, which one do I start with - is it better to go for tax free and bigger monthly payments but lower interest, or higher interest and smaller monthly payments? Any and all advice much appreciated!

Archi_Bald

minerva_windsong wrote: »

I am considering moving to the First Direct current account as recommended on the best current accounts page, which I notice gives you access to the 6% regular savings. However, the maximum you can save in the first month is £300 (although it does apparently go up by £300 a month so in theory we could be depositing the whole £1,000 by month four but would have to find somewhere else for the rest).

No that's not how it works. You can deposit £300 max a month for 12 months, i.e. £3,600 in total.

Obviously, you can each have one of these accounts (subject to FD letting you have accounts), so you could put £600 in there a month.

rb10

As you're only looking to build up your savings in the relatively short term, just look for the best rate. (Had you wanted to keep it for the longer term, there are further benefits to filling up your ISA allowance, but that doesn't apply to just saving for a year).

I wouldn't suggest using First Direct as your current account, unless you like using telephone banking. Their internet/mobile banking isn't particularly good.

Options for the £1k/month savings, in order of preference:

First Direct regular saver for the first £300 per month
Then fill up a Nationwide FlexDirect (up to £2,500 total)
Put all the rest in a Santander 123 account. There's a £2/month fee, but you get cashback on direct debits which should more than offset the fee.