Savings or NISA?

pablakeman

Hey everybody,

I have just got a new job for which I have been an offered a interest-free loan. I have taken this and am looking to put it away into savings.

A NISA can give me 1.5% easy-access with Nationwide, or the best savings rate I can get is 1.4%, which actually doesn't seem to be as easy access. Am I missing something or is the NISA the obvious choice? (at the moment I want easy-access for a few months until I settle into the job and the city).

Any help would be appreciated!

Thanks!

jimjames

Not sure where you are looking but based on your sig the best rate is 5% with TSB current accounts. ISAs are far from a good option with the amount you have listed.

pablakeman

I have a Halifax bank account that is paying me £5 a month interest so has money going into it, which is the best current account for me. Is it possible to get a TSB current account too? If I just need to keep putting certain amount of money in?

jimjames

pablakeman wrote: »

I have a Halifax bank account that is paying me £5 a month interest so has money going into it, which is the best current account for me. Is it possible to get a TSB current account too? If I just need to keep putting certain amount of money in?

Yes you can have both accounts.

With the Halifax and TSB combined you can get the equivalent of 12.5% on £1000. That's way better than any cash ISA out there.

All you need to do is to move £500 between the TSB and Halifax accounts each month and keep whatever you are doing already to meet the Halifax conditions.

Archi_Bald

Agree with jimjames.

As an aside, your question expands to " Savings or New Individual Savings Account?". Both are savings accounts. Only difference, for tax payers, is that the interest is paid tax free in an ISA. But the "tax free" element is for many people totally irrelevant as they can presently earn a lot more interest, after tax, in current accounts. Even if the ISA rates were to significantly increase over the next year or so (pigs might fly...), the allowance of £15K would enable many people to just put all their savings into an ISA in one go.

The other factor to consider is inflation. Although the latest CPI is now down to 1.6%, a 1.5% ISA would still ensure that your money (savings plus interest) will actually lose value as it doesn't keep pace with inflation. A bad choice, surely?

pablakeman

Archi_Bald wrote: »

Agree with jimjames.

As an aside, your question expands to " Savings or New Individual Savings Account?". Both are savings accounts. Only difference, for tax payers, is that the interest is paid tax free in an ISA. But the "tax free" element is for many people totally irrelevant as they can presently earn a lot more interest, after tax, in current accounts. Even if the ISA rates were to significantly increase over the next year or so (pigs might fly...), the allowance of £15K would enable many people to just put all their savings into an ISA in one go.

The other factor to consider is inflation. Although the latest CPI is now down to 1.6%, a 1.5% ISA would still ensure that your money (savings plus interest) will actually lose value as it doesn't keep pace with inflation. A bad choice, surely?

Hi yes that is great. I was just using the common names to distinguish but thanks for the thought.

Thanks to you both! The help is really appreciated.

I understand the inflation argument but firstly, I have the money already (I don't know if I made that clear) and secondly, it is interest free over 4 years. As I want to have some money put away for a rainy day, it makes perfect sense to take the loan, even if it technically loses value over time. That is just the way the times are unfortunately.

I shall look into a TSB current account and should be able to fill the £2000 limit.

Archi_Bald

pablakeman wrote: »

I shall look into a TSB current account and should be able to fill the £2000 limit.

You can have two of them, so £4,000 potential.

pablakeman wrote: »

it makes perfect sense to take the loan, even if it technically loses value over time

I agree it makes sense. But you do not have to lose value, as you can grow it.

pablakeman

Archi_Bald wrote: »

You can have two of them, so £4,000 potential.



I agree it makes sense. But you do not have to lose value, as you can grow it.

Thanks your reply is really useful! I didn't know that I was allowed 2 of them!

lazer

pablakeman wrote: »

Thanks your reply is really useful! I didn't know that I was allowed 2 of them!

And you don't need external transfer - can just transfer the £500 between the 2 accounts

gozaimasu

Aren't interest free loans from an employer a taxable benefit, thus negating any interest you might earn?

bowlhead99

gozaimasu wrote: »

Aren't interest free loans from an employer a taxable benefit, thus negating any interest you might earn?

There are some exceptions - for example a loan that was supposed to be used to pay for a travel season ticket.

The usual exceptions don't seem to be the case here, given he said it was a 4 year loan. If it's just a general amount of cash to say 'welcome' and help him get on his feet while moving jobs and cities then it doesn't seem it would be exempted. But presumably they'll just work out the benefit (they'll be paying Class 1A NIC on it) and may have agreed that they'll gross up his tax through payroll so that he isn't out of pocket and genuinely does feel the effect of having had their money temporarily, interest free.

Even if he is taxed on the benefit of not paying them the official interest rate of 3.25%, basic rate tax on that is only 0.65% which is not exactly painful - doesn't 'negate' all the interest you can earn, merely reduces the net result by a bit.