Help with interest rates

Jennysmith

I would like to put £10000 in a fixed rate savings account. I understand that my money will be locked away for one year. What I don't understand is exactly how much interest i.e. money I will make by the end of that year. These are the facts: the length of term is one year as mentioned above, the gross/ AER is 1.95%, gross monthly is 1.88%, net annual is 1.52% and net monthly is 1.50%. I am a high rate tax payer. Could somebody tell me exactly how much money I will make by the end of the term, the difference between gross and net and whether it would be better to go for annual or monthly interest? Many thanks.

jimjames

If you are a higher rate taxpayer then you would only need the net number and then to pay additional tax on top of that.

£10,000 is one of the easier amounts as it's a nice round number. Percent means per hundred so the rate is the amount (eg £1.50) you get per £100 per year. I'll leave you to do the maths on that.

You'll get exactly the same amount for monthly or yearly, just depends if you need the money each month.

Jennysmith

Thank you for your reply. So does that mean I would get only £150 interest by the end of the year, since that is 1.50% of £10000, and I would still have to pay additional tax on that? Sorry to be a bit thick but I'm hopeless with numbers and financial terms!

Archi_Bald

Afraid, you would have to tell HMRC about the interest, and they would take another 15% in tax off you. So you would be left with around £112 only.

You can probably get a bit better in a couple of 1-year fixed rate cash ISAs. Max you can put in this financial year is £5,760, and the rest on 6 April 2014, into a separate ISA. Check post 1 of https://forums.moneysavingexpert.com/discussion/401374

ISA interest gets paid without tax deduction.

eskbanker

Given the relationship between current account rates and savings accounts just now, you'd get a better return on your £10K by putting it into a Santander 123 or a couple of Lloyds/TSB/BOS Vantages (and setting up a bit of shuffling to satisfy minimum funding requirements), where you'd get 3% gross or 1.8% net. This is 'only' £68 more than you'd get in the fixed rate account but you wouldn't be locked in to a one-year period and would have the flexibility to add or subtract funds as and when if suited....

Jennysmith

Thank you all for your help. An ISA seems to be the best option so I'll have a look into it. Happy new year to you all