savings, interest question

ninjablossom

this maybe a basic question but just reading around I'm confused.

I'm a higher rate tax payer and paid off my debts (yay) and can now start putting £1000 per month away for a flat deposit. Some months I could put more away, but I won't need easy access.

I read that a NISA is the way forward as I get all the interest but then a current account with high interest sounds better (nationwide regular saver is 2.50 on putting £1000 in each month - but I'll pay 40% tax on any interest? so a NISA would still be better?

Your_Hero

ninjablossom wrote: »

this maybe a basic question but just reading around I'm confused.

I'm a higher rate tax payer and paid off my debts (yay) and can now start putting £1000 per month away for a flat deposit. Some months I could put more away, but I won't need easy access.

I read that a NISA is the way forward as I get all the interest but then a current account with high interest sounds better (nationwide regular saver is 2.50 on putting £1000 in each month - but I'll pay 40% tax on any interest? so a NISA would still be better?

Assuming it's a Cash NISA, what's the best interest rate you can find for regular saving? Do some research.

If the current account pays 2.5% gross, then your effective rate of interest as a higher rate payer becomes 1.5%. So unless you can better that, which I doubt (although, admittedly I haven't looked at the NISA rates recently but since you are not paying in a lump sum then it's unlikely) then the current account should work out better.

colsten

ninjablossom wrote: »

I read that a NISA is the way forward as I get all theinterest

where did you read that? If "all the interest" is less than "interest after tax", there might not be any point bothering with cash ISAs.

Don't forget monthly savings accounts - First Direct 6% £300, HSBC 4% £250, and Club Lloyds 4% £400 max a month. Combine with 2 TSB Plus current accounts 5% £2,000 max in each, and the Club Lloyds at 4% up to £5,000 and you can beat any cash ISA. Might still empty some of it into a cash ISA next March, to make use of some of the ISA allowance for 2014-15. Though cash ISA rates are generally too dire to warrant any attention....

p00hsticks

One think to bear in mind if there's not much in it is that once opened, there's no tax paper work involved with the NISA.

On a non-ISA savinmgs account, 20% tax will be deducted on the interest as a default.

You then have to contact HMRC to let them know that, being a higher rate tax payer, you are liable to pay an additional 20% on your savings interest. They'll then tell you how much extra you owe and how to pay it (they may adjust your tax code - I'd try to avoif this method if possible as in my experience they'll then assume you'll owe the same amount each year)

ninjablossom

colsten wrote: »

where did you read that? If "all the interest" is less than "interest after tax", there might not be any point bothering with cash ISAs.

That if I open an NISA and earn the 1.5% interest on the amount in there when it matures - then I don't get taxed on that interest?
Where on a current account I'm liable to pay tax on any interest. Might have been the way I worded it, sorry.

Thanks for the advise guys. As I've just paid off debts this is all new to me and I'm not very good with money. I found the Leeds BS NISA to be a good rate but I'll have a look at all those current accounts and as you say might be a case of saving some in one place and some in another.

jimjames

ninjablossom wrote: »

That if I open an NISA and earn the 1.5% interest on the amount in there when it matures - then I don't get taxed on that interest?
Where on a current account I'm liable to pay tax on any interest. Might have been the way I worded it, sorry.

It is far better to pay tax on 5% interest than get 1.5% interest tax free.

ISAs are not relevant for most people at the moment but for higher rate taxpayers and big sums they may still be beneficial. Just check out all the options and remember that it is worth paying tax if the rate still beats the ISA one despite what MSE tell you about always using ISAs first.

badger09

ninjablossom the Nationwide Regular Saver ISA seems to have been withdrawn earlier this month.

You need to compare the rates available on current accounts, after your 40% tax, with those on ISAs.

First Direct's 6% means 3.6% after your tax has been accounted for.

Nationwide and TSB's 5% means 3% after tax

Club Lloyds' 4% means 2.4% after tax

You can't match those rates in an ISA. Well you can match 2.4% but only by fixing for several years which doesn't suit your situation

Outside an ISA, the bank or building society will automatically take 20% off your interest. All you have to do is declare your interest on your annual Self Assessment Return, or if you don't already complete one, you simply write to your tax office at the end of the tax year and tell them what interest you've earned. They'll then adjust your code number so you pay the right amount of tax.

Congratulations on paying off your debts and good luck with saving for the flat deposit.

Do come back if you have any more questions, but have a look at the accounts mentioned first

ninjablossom

thanks. I guess my worry is opening various options and transferring the correct amounts to get the best level of interest. But then it will probably be a good learning experience. I shall go investigate, thanks all.