Confusion with the Savings Fountain

Hy09fkm

Hi all,

Martin recommends using a current account with a high interest rate first, then a regular savings account and then an ISA.

What I'm unsure about is if at the end of the tax year you are expected to transfer most of the account balances into the ISA to avoid tax?

Any help would be appreciated.

colsten

If you have, or will soon have, more than £15K in savings, may be tipping all or some of your money into an ISA could make sense but only if you will not be spending the money in the next couple of years anyway.

For the majority of people there is not much point settling for tax free cash ISA interest at the expense of much higher interest after tax from current and regular savings accounts.

jimjames

Hy09fkm wrote: »

What I'm unsure about is if at the end of the tax year you are expected to transfer most of the account balances into the ISA to avoid tax?

Any help would be appreciated.

If the rate is higher paying tax then it's better to pay the tax and get that rate rather than chase the ISA purely to not pay tax.

I'd rather pay tax on 5% than get 1% tax free.

Vortigern

Hy09fkm wrote: »

What I'm unsure about is if at the end of the tax year you are expected to transfer most of the account balances into the ISA to avoid tax?

I'm about to move in the opposite direction. ISA maturing, rate drops, move cash out of ISA to a couple of current accounts.

Current accounts pay more interest, even after basic rate tax is deducted.

bsms1147

Hy09fkm wrote: »

Hi all,

Martin recommends using a current account with a high interest rate first, then a regular savings account and then an ISA.

What I'm unsure about is if at the end of the tax year you are expected to transfer most of the account balances into the ISA to avoid tax?

Just to clarify this; the interest will be taxed so long as the money remains in a taxable account. By moving it into an ISA, you will avoid tax from that point onwards. You will not avoid tax by moving it just before the tax year ends.

Eco_Miser

To further clarify bsms1147's statement, by moving the money into an ISA at the end of a tax year, you will save the tax on all future years until you withdraw it, AND you will still have the following year's ISA allowance available, whereas if you waited a few days and ISA'd the money at the start of the following tax year, you would save virtually the same amount of tax, but would have used some of that year's allowance.

Whether that is of importance depends on whether the amount in question is near the annual allowance, and the difference in rates between ISA and non-ISA accounts.