Interest current account vs ISA

JoeBG90

Hi,

Yes I'm a normal rate tax payer and complete novice. A lot of what's being said is going well over my head (this is where banks make their money IMHO and as a teacher this SHOULD be taught more in schools!)

I hadn't considered the 20% and now see why it's actually 2.4% (I did notice the mistake but I got your meaning ).

Santander of £4,250 + £500 x 11 months =£9750 in the first year + interest at 2.4% = £234 (that's if I close my ISA and put all my money in one account).

ISA = £1250 + 500 x 11 = £6750 add interest at 2.59% = £398.25 after a year

Am I doing this right? It seems to be like I make more by keeping the ISA and using the Santander account at the same time, earning cashback on direct debits. Please correct me if I'm wrong. Wow my brain hurts!

YorkshireBoy

2.4% is an annual return, not a monthly return! The A in AER stands for annual. EDIT: I see you've corrected your mistake whilst I was typing.

You can't compare AERs in this case because the Nationwide account doesn't pay the 2.59% rate for a full year.

You earn interest at the gross p.a. rate, so you're comparing 2.59% with 2.37%. In practice, because you'll get some monthly compounding, you'll probably earn 2.38% with Santander.

In summary, between now and next March you'll make more money at Nationwide.

JoeBG90

Thank you! My god why must this be so infuriatingly confusing?!?!

[Deleted User]

Hi,

I'm back, sorry for misleading you earlier , bad maths, maybe you could teach me.

Curious why you want to stick with cash, if you're young, free and single, why not drip feed into a fund or S&S Isa, take a chance, it's a bit like bungee jumping, without the bounce, once you hit the rocks, your done.

JoeBG90

I'd rather not hit the bottom!

It's okay, I may be a teacher but I need more than QTS to get my head round this stuff! I'm not young(ish) and I'm not free or single (tied down by a small mortgage). I've only just started my career so don't have enough for an S&S ISA just yet. After looking through everyone's advice, and thinking...A LOT...I've come to the same conclusion. I just needed a little bit of help.

badger09

Without wishing to add to your confusion, or mine but which Nationwide ISA is paying 2.59%?

YorkshireBoy

badger09 wrote: »

Without wishing to add to your confusion, or mine but which Nationwide ISA is paying 2.59%?

The Regular Saver ISA. Don't forget that 2.59% is the gross p.a. rate, not the AER.

JoeBG90

What's the difference between AER and the gross one?

To add further confusion (just my style) it says on my account that the interest is paid yearly...

Can I pay £1 a month (minimum monthly deposit) and then when the cap (currently at £1250 max deposit) is lifted in March 2015, just put a chunk of the funds from my Santander into the ISA and earn the higher interest in that month as long as it's not in excess of my allowance?

Surely that's too easy?

YorkshireBoy

JoeBG90 wrote: »

What's the difference between AER and the gross one?

AER is a notional figure, and represents what you'd get if interest was paid and compounded once per year. It's designed to allow you to compare accounts where interest is paid at different intervals. However, it's of no use unless the gross p.a. rate applies for a full year (and with Nationwide it doesn't). More details...

http://moneyfacts.co.uk/guides/savings/what-does-aer-mean04-01-11/

Remember...you always earn interest at the gross p.a. rate

To add further confusion (just my style) it says on my account that the interest is paid yearly...

Can I pay £1 a month (minimum monthly deposit) and then when the cap (currently at £1250 max deposit) is lifted in March 2015, just put a chunk of the funds from my Santander into the ISA and earn the higher interest in that month as long as it's not in excess of my allowance?

Well you can, yes...but as I've already told you, you'll make more money in Nationwide than you will in Santander. It's 2.59% vs circa 2.38% remember? So why keep it in Santander? Get as much as you can, as soon as you can, from Santander into Nationwide.

JoeBG90

Yea I remember that but it says interest is paid in March 2015....so my money is doing nothing in the account until that month surely? I could keep it somewhere that gives me a monthly interest... or do I have to keep it in there to earn the interest at the end of the year? Am I making sense?