ISA or Santander 123

kirst2203

Hi

I have a loyalty reward ISA with Barclays which now pays 2.01% interest. I also have a Santander 123 account and am aware that this pays 3% so I'm thinking of moving my cash there. Im just unsettled by the fact that I'm taking money from an ISA that is supposed to be the best way to save and putting it in a current account; there must be some catch? Wont i have to then pay tax on my savings?
Also doesn't the interest on the ISA depend on how long its been in the account? i.e. if i take it out then want to put it back ill earn less?

Thanks

jimjames

Taking money out of an ISA means that you will then pay tax on that interest. 3% on the Santander account will be less than that once basic or higher rate tax is deducted so you need to compare like with like.

Really depends how much you are talking about. If it is around £5k and you won't be filling your ISA with other money then you can always put it back inside an ISA when the rates pick up again.

I'm not aware of any accounts where the rate of interest depends on how long you've had the account open. Some do special offers for existing customers though.

kirst2203

hi thanks for replying

i have around 5k. do we know how much tax id pay on that?

greenglide

jimjames wrote: »

Taking money out of an ISA means that you will then pay tax on that interest. 3% on the Santander account will be less than that once basic or higher rate tax is deducted so you need to compare like with like.

Basic rate tax at 20% reduces the 3% to 2.4% so, at a basic level, the 123 account is still better.

However don't forget that payments into ISAs are limited to the annual limit so that any withdrawal may not be able to be replaced if interest rates change.

If you pay higher rate tax the tax advantage of ISAs is larger.

Also remember that cash ISAs can be converted into Stocks & Shares ISAs (but not back again) at any point. Once the wrapper has been thrown away you cannot get it back.

greenglide

kirst2203 wrote: »

hi thanks for replying

i have around 5k. do we know how much tax id pay on that?

You only pay tax on the interest. 5k at 3% is around about £150.

Remember that money in a "savings" type account (and an ISA is very much a "don't touch me" account) but money "saved" in your current account is more likely to be dipped into.

Do you have the financial restraint not to accidentally spend the money in the current account?

jimjames

greenglide wrote: »

Do you have the financial restraint not to accidentally spend the money in the current account?

There is no reason why the current account needs to be your main account so you can use it exactly as a savings account if you want.

greenglide wrote: »

However don't forget that payments into ISAs are limited to the annual limit so that any withdrawal may not be able to be replaced if interest rates change. Once the wrapper has been thrown away you cannot get it back.

For £5k then it doesn't really matter if you withdraw it from the ISA, you can easily pay it back in again for a future tax year if you want to use an ISA again. If it was £50k then it would be different as you couldn't then get that back into an ISA easily.

If you are looking to maximise your return then putting £2500 of it in Nationwide will get you 5% on that bit, the remainder could go to Santander.

kirst2203 wrote: »

hi thanks for replying
i have around 5k. do we know how much tax id pay on that?

You don't need to really worry about the tax - it is taken off before you get the interest so you wouldn't need to pay anything unless you are a higher rate taxpayer. As greenglide has explained the figures you need to compare are the net (after tax) interest numbers so you can see how much you'd get in both.

kirst2203

Thanks for useful and speedy replies
I do have the restraint not the spend the money but as jimjames says the Santander is not my main account anyway so not to worry there.
However, it doesn't really sound worth it to go from 2.01% to just 2.4%?? Especially given that in the next few months my savings will reach over the isa allowance so if i want to put it back I'm can only go up to 5760?? I don't know, I'm confused lol
Thanks

kirst2203

Ah yes, hmm wonder why nationwide isn't mentioned on the best savings account MSE page? Could i deposit the 2.5k in to nationwide straight away then transfer 1k from wages each month to hit the requirement then take 1k straight back out?
Then there's yorkshire bank who offer 4%, How many current accounts can one person hold? lol i don't want to make a bad dent on my credit report :S but it sounds like i could get a total of 9% if i was able to open those two?

eskbanker

kirst2203 wrote: »

How many current accounts can one person hold? lol

Loads - see this thread: https://forums.moneysavingexpert.com/discussion/4884276

kirst2203 wrote: »

it sounds like i could get a total of 9% if i was able to open those two?

No, you could get 5% on half of it and 4% on the other half, so 4.5% overall (less tax).

kirst2203

If i was to apply for two new current accounts now would that set me back on my credit report for a mortgage in june?

Bravepants

I just moved my cash ISA cash (about £14k) to a Santander 123 because Natwest dropped their rates to a paltry 1.5%. I moved some other cash into there too, so I now have a £20k emergency fund. I want say 5k more in another savings account as a buffer and then that's it for cash savings for me! I'm going to concentrate on my S&S ISA and paying off the mortgage.

P