3% current account or cash ISA?

shonafraser

My daughter has £6000 savings and we can't decide if we should leave it in our 3% interest current account or an ISA which all have really low interest rates at the moment? Any advice would be welcome.

innovate

Same answer as always - if she ends to spend the money in the next couple of years, she might as well go for the best return she can get (in current accounts).

If she can afford a longer term view, it would be silly not to exploit the annual ISA allowance.

If she isn't sure, she might as well go for the ISA because the difference in return on £6,000 between 2.4% AER and 1.8% AER isn't life changing. But having lots in a tax-free wrapper could prove very valuable long term.

G_M

Key question - does she pay tax?

Access required? Even at instant access or 30 days notice you can get 2.5% or even 2.75% (Vernon BS) on an ISA.

3% in a current account= 2.4% after basic rate tax (or less if it is Santander 123 with a £2 pm fee.)

shonafraser

Thanks G_M. I have looked at the Vernon BS account which lloks like a good deal. The only negative seems to be that she can't put the whole £5,760 away in one go, have to commit to monthly savings?

Archi_Bald

The Vernon 2.75% AER is useless if you have a lump sum, and it is pants if you can put in the max £480 a month allowed. You can get 4% for a monthly £480.

Unfortunately, most other cash ISA places are useless or pants these days, too. Best ones available at any one point in time are listed in post 1 of this thread: https://forums.moneysavingexpert.com/discussion/401374

G_M

sorry - I skim-searched and missed that. Bloody moneysupermarket should have weeded out monthly savers.....

shonafraser

No problem. I am coming to the conclusion that it may be best to leave it where it is in the Santander 123 account or what about this Clydesdale account?
Clydesdale doesn't seem to get a good press generally but this 4% interest account on £3000 might be worth a shot? What do you all think?

innovate

shonafraser wrote: »

No problem. I am coming to the conclusion that it may be best to leave it where it is in the Santander 123 account or what about this Clydesdale account?
Clydesdale doesn't seem to get a good press generally but this 4% interest account on £3000 might be worth a shot? What do you all think?

I'd suggest you do your numbers. Or your daughter does her numbers.
The difference between an ISA and a best interest paying account on £6k is peanuts right now. Literally. Less than a Big Mac. So just about completely irrelevant if your daughter is going to spend the £6K within the next 2-5 years.

If she doesn't want/need to spend the money, and if she is likely to remain/ become a basic or higher rate tax payer, she could not go wrong with a good cash ISA to start with.

And if she isn't sure, she should err on the side of caution and opt for an ISA.