Does this make sense?

Chris_Corbett

Hi,

I currently have some savings that I'd like to put in an ISA but I also know that I will need to buy a new car at some point this year that will require me to take some finance.

I am thinking that if i take out a Sainsbury's loan at 3.7% for £15,000 over 36 mths then then the interest averages out as £277 per year.

If I then put my savings (£15k of) into a top paying fixed ISA then I will receive 2.1% AER which should equal £315 tax free interest year.

Assuming that's right then I will be profiting from the loan and securing my year's ISA allowance (which I wouldn't do if I don't invest my savings before 1st April).

Does anyone see a glitch in this approach? http://static.moneysavingexpert.com/images/forum_smilies/smile.gif

Gaz83

Chris_Corbett wrote: »

Hi,

I currently have some savings that I'd like to put in an ISA but I also know that I will need to buy a new car at some point this year that will require me to take some finance.

I am thinking that if i take out a Sainsbury's loan at 3.7% for £15,000 over 36 mths then then the interest averages out as £277 per year.

If I then put my savings (£15k of) into a top paying fixed ISA then I will receive 2.1% AER which should equal £315 tax free interest year.

Assuming that's right then I will be profiting from the loan and securing my year's ISA allowance (which I wouldn't do if I don't invest my savings before 1st April).

Does anyone see a glitch in this approach? http://static.moneysavingexpert.com/images/forum_smilies/smile.gif

Where does the car come into play? Is the loan you're planning on taking out separate from the finance from the car?

TrickyDicky101

I would have thought the interest rate disparity might have given it away.

RDG

If the interest on the loan is higher than that on the ISA I dont see how you can be profiting from this?

Chris_Corbett

RDG - it's because the loan value goes down over the period so averaged out the interest comes out at less. In contrast the ISA continues to pay on the full £15k.

Chris_Corbett

TrickyDicky101 - same answer as given to RDG.

Chris_Corbett

Gaz83 - loan is just to put twoward the car or as a deposit on any other finance I take on the car.

Cycrow

This all depends on if you can actually get a loan at 3.7%

[Deleted User]

Chris_Corbett wrote: »

RDG - it's because the loan value goes down over the period so averaged out the interest comes out at less. In contrast the ISA continues to pay on the full £15k.

But you need to take money from your savings to pay the loan, so your savings also goes down at the same rate as your loan. So you will lose money.

TrickyDicky101

Deleted_User wrote: »

But you need to take money from your savings to pay the loan, so your savings also goes down at the same rate as your loan. So you will lose money.

^ this. And now to make up to 10 characters...

Chris_Corbett

Kind of but not really as the the payments will be coming out of my monthly salary so yes it's money I could be putting away gradually but the nett interest on that would take a long time to accumulate based on payment of £300 odd a month.