Saving for a mortgage - ISA or savings account

WLITC

I'm currently saving for a mortgage deposit with a view to buyingin Sept/Oct 2015. Have already saved £3k and plan on saving £1k a month.

I'm thinking of opening a Nationwide Save to Buy savings account, having ruled out an ISA as someone suggested it wouldn't yeild much. Then last weekend I was discussing it with my friend and he's insistent I should go down the ISA route and I could put £3k into the ISA now and then a further £1k each month.

This is the Save to Buy ISA account with Nationwide http://www.nationwide.co.uk/products/savings/save-to-buy-isa/features-and-benefits it gives 2.00% APR. If I'm only saving for about 18 months, will it yeild enought tax savings to make it worthwhile?

Archi_Bald

Look at interest paying current accounts instead. You might need several but you should be able to easily stick around £50K into current accounts and get more interest than you can get in a cash ISA.

WLITC

Okay, but I'm only likely to have saved around £21-23K by Sept/Oct next year and then of course it will be used for a deposit on a house. I'm assuming to get a higher interest savings account, I'd have to tie it up for longer than 18 months?

Scarpacci

WLITC wrote: »

Okay, but I'm only likely to have saved around £21-23K by Sept/Oct next year and then of course it will be used for a deposit on a house. I'm assuming to get a higher interest savings account, I'd have to tie it up for longer than 18 months?

No. As Archi Bald said, the best paying accounts at the moment are just current accounts, no different to your main bank account - except they're paying good interest rates. Though they usually have some requirements (such as pay £x in each month or have x direct debits), there are no fixed terms on the money in the account. It can be moved freely in and out as needed.

To achieve similar rates in an ISA or savings account would indeed usually mean locking your money away for longer, but not with these current accounts. For most fixed rate ISAs it also wouldn't be possible to contribute more after a certain date, so it wouldn't be a good place for building savings even if the rates were competitive (which for basic rate tax payers, they are not).

There's a list of the best current accounts here: https://savingschampion.co.uk/best-buys/personal/high-interest-current-account/#table Take a look at the requirements for each - remembering that "paying £x each month" does not mean you have to put new money in every month. It is enough to send £x from this high interest account, back to your main account and then send it back to the high interest account. It's easy to do with internet banking and should take no more than a few minutes each month. Count up how many direct debits you have and would be willing to move, as it's a requirement for some but not all of the accounts. The Nationwide FlexDirect account, Yorkshire/Clydesdale account and the soon to be launched TSB account are the simplest, since they don't require any DDs. The Santander 123 (requires 2 DDs) is worth a look at 3% because it pays on balances up to 20k. Be sure to do your own research to try get the best account(s) for you.

This may sound complicated but it's really not. Once you've done it, it's definitely worth the minor hassle. These accounts pay far more than savings accounts and ISAs are and, perfect for your situation, you're not locking your money away.