Options for future graduate with savings

Jesuismoi

Hi,

I am in my final year of university so assuming I get a job I will have to start paying tax on my savings. I have about £26,000 in a post office savings account at the moment, though I'm not sure of the interest rate offhand. I also currently have a Santander everyday online saver with about £2,000 and a 123 student current account that my student loan gets paid into. I am wondering whether to invest £15,000 now in an ISA then the rest after the end of this tax year, or since the rates are not great if I should put some or all of it in a higher paying current account and take the tax hit, as it'll work out better overall. I don't really know much about tax and savings as I've never had to pay tax. I'm also not sure if it's best for me to have an easy access account since I don't know if I may want to buy a house or car or something in the near future. Maybe I could lock it away for a year but after that I don't know where I'll be. If it makes any difference I may be living abroad from next year as I study French and Spanish.

Thanks for any advice you can give me

Eco_Miser

You'll probably have to pay tax, but if your earnings are less than £10k (and your taxable savings income less than £5k), you won't.

When choosing between accounts, don't try to minimise tax, but to maximise your net return - which at the moment means lots of current accounts.

fwor

Unless you've specifically asked not to, you are probably paying tax at source on your PO savings account anyway.

You don't say what account you have, but it's probably paying something pathetic like 0.65%. If so, it will pay you transfer as much as you can up to the £20k interest limit into your Santander 123 account, as that pays 3% on larger balances.

At the moment there's not a convincing reason to put money in cash ISAs as the interest rates are so low. FD had one that paid 2% but I haven't checked if that still exists. In the short term ISAs are probably a waste of time for you, though in the long term (when you start earning lots of money) building up an ISA pot may be worthwhile.

colsten

fwor wrote: »

If so, it will pay you transfer as much as you can up to the £20k interest limit into your Santander 123 account, as that pays 3% on larger balances.

The 123 student account the OP has only pays interest up to £2,000, not £20,000, like the 'adult' (for want of a better word) one does. But the OP might be able to open an 'adult' 123, too.

fwor wrote: »

At the moment there's not a convincing reason to put money in cash ISAs as the interest rates are so low.

Agreed, OP should investigate other interest paying non-ISA accounts, particularly if they intend to move abroad in the near future. Interest rates in french and spanish speaking countries are even worse than cash ISA interest rates. You can't open UK accounts once you are not a UK resident but you can keep them (though you are not allowed to make further contributions to ISAs, and cash ISAs are generally not the best choice for most people these days).

OP, you should spend some more time reading through the forum to learn about various savings and investment options. There are no simple 'this is how you do it' answers but luckily you have many options and you can construct a plan that works best for you.

Jesuismoi

fwor wrote: »

Unless you've specifically asked not to, you are probably paying tax at source on your PO savings account anyway.

You don't say what account you have, but it's probably paying something pathetic like 0.65%. If so, it will pay you transfer as much as you can up to the £20k interest limit into your Santander 123 account, as that pays 3% on larger balances.

At the moment there's not a convincing reason to put money in cash ISAs as the interest rates are so low. FD had one that paid 2% but I haven't checked if that still exists. In the short term ISAs are probably a waste of time for you, though in the long term (when you start earning lots of money) building up an ISA pot may be worthwhile.

I'm not paying interest on the PO account because I've always filled in a form saying that I earn less than the allowance. I don't think the rate is great but it's one that you get offered as an existing customer. I had seen that the 'normal' 123 account had a good interest rate but I thought that said that I would have to pay in a certain amount per month, so I couldn't move the whole lump sum in in one go. I will investigate current accounts, I suppose it seems counter intuitive to earn more from a tax paying account than an ISA! Thanks for all of your advice.

fwor

Jesuismoi wrote: »

I thought that said that I would have to pay in a certain amount per month

Apologies - didn't notice the "student" 123 bit.

Those of us that don't have a certain amount each month going in just schedule transfers in (from a non-Santander account) and transfers back out the following day. It's entirely within the bank's rules, so no problem there.

I personally don't hold any cash ISA accounts at the moment, but have the max I can in the decent (or half-decent) current and regular savers that there are around.

colsten

Jesuismoi wrote: »

I'm not paying interest on the PO account because I've always filled in a form saying that I earn less than the allowance.

As of yet, nobody in the UK has paid interest for keeping money in a bank. There is presently no reason to think we might have to anytime soon, but never say never as a country not a million miles away, lauded by the SNP and by UKIP for their independence, introduced a negative interest rate this week - i.e. it will cost people to keep their cash in a swiss bank. http://www.bbc.co.uk/news/business-30528404

Jesuismoi wrote: »

I don't think the rate is great but it's one that you get offered as an existing customer. I had seen that the 'normal' 123 account had a good interest rate but I thought that said that I would have to pay in a certain amount per month, so I couldn't move the whole lump sum in in one go. I will investigate current accounts, I suppose it seems counter intuitive to earn more from a tax paying account than an ISA

Don't get befuddled by cash ISAs paying gross interest. There are dozens of threads discussing why cash ISAs are presently not the optimum choice for most people - just browse around the forum to find them.

The Santander 123 needs a mere £500 monthly minimum. Unless you are barred from opening current accounts, it will be very straight forward to open another current account, say with TSB who pay 5% interest in the TSB Plus current account provided £500 is paid in each month, and swap £500 between your Santander and the other current account. Again, tons of posts about this on the forum, really worth your while to read up on what is already there.

Jesuismoi

colsten wrote: »

As of yet, nobody in the UK has paid interest for keeping money in a bank. There is presently no reason to think we might have to anytime soon, but never say never as a country not a million miles away, lauded by the SNP and by UKIP for their independence, introduced a negative interest rate this week - i.e. it will cost people to keep their cash in a swiss bank.

Don't get befuddled by cash ISAs paying gross interest. There are dozens of threads discussing why cash ISAs are presently not the optimum choice for most people - just browse around the forum to find them.

The Santander 123 needs a mere £500 monthly minimum. Unless you are barred from opening current accounts, it will be very straight forward to open another current account, say with TSB who pay 5% interest in the TSB Plus current account provided £500 is paid in each month, and swap £500 between your Santander and the other current account. Again, tons of posts about this on the forum, really worth your while to read up on what is already there.

Sorry, I meant pay tax not interest. It was late!

I'll definitely look into that current account, although apparently you also have to have 2 active direct debits set up on it so unless I'm going to be paying bills from it I don't know if that'll work. Thanks anyway

Eco_Miser

Jesuismoi wrote: »

I'll definitely look into that current account, although apparently you also have to have 2 active direct debits set up on it so unless I'm going to be paying bills from it I don't know if that'll work.

Again read through the many threads on the higher interest current accounts, and the Tesco Internet Savings accounts which pull savings from current accounts with Direct Debits.