Question about current ac savings + ISAs

HeavensDevil

Sorry if this is a daft question, but in the savings section of MSE, Martin recommends using high-interest current account/s to build savings throughout the year, then moving all the funds into an ISA at the end of the financial year in order to maximise the interest earned. It's not clear to me what we should do after that, when the ISA interest has been paid; should we be keeping the money in the ISA and starting again from scratch with the high interest current accounts, or transferring the money back into the current accounts and carrying on as before? Thanks in advance for any advice

ceredigion

Why put the money in the ISA at all. Speculative question.

colsten

An awful lot depends on

• how much money you have saved so far
• how much money you expect to save in the next 5 or so years
• how much of your savings you are planning to spend in the next few years
• what your tax rate is now, and what you expect it to be in future
• what your pension arrangements are

You need to work out a financial plan for yourself as there is no single recipe for all.

ceredigion

Nice answer Colsten, I went the short way because reading between the lines, think the OP hasn't grasped the way interest is calculated.

jimjames

If you're thinking that ISA interest is paid just by the money being in the account then sadly you're mistaken.

To get interest in the ISA you need to leave the money in it. However you're likely to get better rates in current accounts until you have over £50,000.

HeavensDevil

Thanks for the replies so far. I am the first to admit that my knowledge and understanding of these things is not what it could be! The reason I asked about opening an ISA is basically because that's what Martin suggested to do (or that's how I took it to mean anyway). But I didn't really understand why a bank would pay potentially £150+ of interest on funds that may have only been there a number of days, so I'm guessing he's suggesting to keep it there long(er) term.

In regards to my circumstances, I am earning at the moment, on the lower tax rate, however this will only be until August/September when I return to uni. I have no particular plans for my money at the moment, but wouldn't like to lock it all away in fixed term accounts, just in case. I could probably spare a few grand to lock away for a few years though.

At the moment, my primary current account is with First Direct, and I have £300 a month going into their 6% regular savings account. I also have the 5% paying current accounts with BoS and TSB and the 4% one with Nationwide. I have put the maximum into these and set up a series of standing orders so that the minimum pay-in criteria each month are met and interest is earned. I still have a few grand floating about in non-interest paying current accounts that I would like to make better use of. What I am thinking now is to open another BoS Vantage account (according to MSE, I am allowed 3) or to see if Newcastle Building Society soon comes up with another regular ISA saver with a rate around the 2.5% mark and just fill that up as best I can each month. Any thoughts?

colsten

HeavensDevil wrote: »

But I didn't really understand why a bank would pay potentially £150+ of interest on funds that may have only been there a number of days, so I'm guessing he's suggesting to keep it there long(er) term.

No bank would pay interest on money that isn't in accounts, and I don't think Martin is saying they would. Nor is the interest the reason he suggests to put the money into an ISA - - the reason would be to use your annual allowance. This is an "insurance policy" for the future, when rates might rise and/or when you might be a higher rate tax payer. Whether this insurance is worth anything to you, only you can decide.

HeavensDevil wrote: »

I could probably spare a few grand to lock away for a few years though.

If "a few years" means 5+ years, you could consider investments in an S&S ISA or a pension wrapper for those few grand. You haven't mentioned what you do about pensions - I would strongly recommend you do look into this sooner rather than later. You will be thankful to yourself when you are older if you start your pension contributions now. There is a special Pensions board on the Forum where you can get further information.

HeavensDevil wrote: »

I also have the 5% paying current accounts with BoS and TSB and the 4% one with Nationwide

Hmh. I don't think you have any 5% BOS or 4% Nationwide accounts, mainly because they don't have such accounts. It's important to know which accounts pay what.

HeavensDevil wrote: »

.What I am thinking now is to open another BoS Vantage account (according to MSE, I am allowed 3) or to see if Newcastle Building Society soon comes up with another regular ISA saver with a rate around the 2.5% mark and just fill that up as best I can each month. Any thoughts?

It is correct that you can have up to 3 BOS Vantage accounts. You can put some £50,000 into interest paying current accounts at present.

There are also some other regular savers that pay 4% and 6% (Lloyds, HSBC, M&S) which take up to £900 between them a month.

AndyPK

In short, once you have filled up your high paying current accounts, the money has to go somewhere.

If you are likely to be saving a large amount of money over the next year it makes sense to move some money out of the current account to somewhere else (e.g an ISA) so make room for fresh savings.

As once your over your limit in high interest current accounts, you earn zero interest on the amount your over.

e.g Santander 123 limit is £20K
TSB limit is £2K


Money in an ISA should earn more than zero.

TheBunting

If you still have a few grand sitting in an account with no growth, have you considered investing it into a portfolio under a S&S ISA wrapper. Especially if you are in it for a few years. This way it can perform and you can get some growth. Like a Vanguard Lifestrategy, that is down to you but it's just a thought,