S@nt@nder 123: To do or not to do?

eskbanker

sharnap wrote: »

I don't know how to work out what actual interest rate I would get if the account is paying 3% but is tax deductible??
can someone give me a quick lesson/ explanation please
Thanks

If the gross rate is 3% then Santander (as with any other bank) will by default deduct 20% tax from the interest they pay you, so you'll get 2.4% net.


That's the simplistic answer, if you're interested in further details, there are various other relevant factors:

• if you're not a taxpayer then you can get the interest paid gross by completing an R85 form
• if you're a higher rate taxpayer then you'll pay more tax retrospectively to HMRC at the end of the tax year
• there is a £2 monthly fee for the account, which can be interpreted as reducing the overall interest rate percentage accordingly, but can be offset with cashback from direct debits
• technically the 3% headline rate is the AER and the actual monthly payments are based on the 2.96% gross rate which equates to 3% from compounding the interest.