The new tax free savings allowance

Aretnap

joe134 wrote: »

It's not exactly a high rate, if averages out over the year, 3% +from 6%, hardly mega - rate;

The interest rate on a regular saver is 6% - you just can't put all your money into it at once. Pointing out that its "average" rate is 3% would only be meaningful if you had to keep the money you had earmarked for the regular saver it in cash under the bed for the rest of a year.

Actually if you have £3000 earning 3% in a Santander current account and you feed it into a regular saver at £250/month into a regular saver (and assuming you also keep enough in the Santander account to keep the 3% rate) then by the end of the year your return on the £3000 will be £135 (gross) or 4.5%. That's not as good as getting 6% on it for the whole year of course, but it's still £45 better than leaving it sitting in the Santander account at 3%.

bowlhead99

jimmyboy420 wrote: »

I would note that it is implicit in much/all of the media reporting around this tax change that it would apply from the 2016/17 tax year, and therefore cannot be of benefit for savings in the 2015/16 tax year. But clearly, as discussed, it can. (the reason for my question in the first place).

It is even of benefit for some investment decisions you already made. For example if you took out a two year bond six months ago the last bit of interest will not be paid out until 2016/7 but will reap the benefits of the new rules. There is nothing in its design which was supposed to stop it giving you a benefit on money put away in current or previous years. It is always the case that as individual you pay tax on interest on the prevailing rates when received which might be higher or lower than your current marginal rate, allowing some planning.

In that respect, it is not something that has been readily brought to the attention of the general public [in the media] - and therefore I would consider it to be a little known benefit that appears in some ways to contradict the spirit of the legislation.

The spirit of the legislation is to reduce the burden of potential taxes for high nil, basic and higher rate taxpayers. Due to the impracticalities of needing to turn off the withholding at source on various account types across hundreds of institutions, it was not something that could come in overnight. So it only counts for the income received after a specific cut off.

There is always planning and timing opportunities when you draw a line in the sand and say that's the cut off. You are not breaking the spirit of the legislation by timing your receipts so that more of them fall on the more beneficial side of the key date.

"Loopholes" as you quite rightly put in quotes, and "spirit of the agreement"are in the eye of the beholder really. Example: Banks give you higher interest and perks if you start using their current account as if it were a "main account" and pay in x a month and set up direct debits and maybe switch another account to them. Loads of people "fake it" and exploit the limits by transferring the bare minimum in and out.

To the customer they are just doing what the bank said they had to do to get the perk. The bank know a proportion will do this and if they wanted to stop you they would set more aggressive terms. The result is that perhaps they are only offering 5% instead of 6% because of the marketing budget which is being inherently wasted on "planners"gaming the system.

Similarly the government could maybe let you off £200.50 of interest tax in 2017 instead of £200 if there were not some people exploiting the timing as far as they can. But they know how it will shake out so don't worry too much and just set the limits at a simple figure based on what the country's coffers can afford. So, the spiritof the rules are not being broken as the spirit allows for planning.

Archi_Bald

Aretnap wrote: »

Actually if you have £3000 earning 3% in a Santander current account and you feed it into a regular saver at £250/month into a regular saver (and assuming you also keep enough in the Santander account to keep the 3% rate) then by the end of the year your return on the £3000 will be £135 (gross) or 4.5%. That's not as good as getting 6% on it for the whole year of course, but it's still £45 better than leaving it sitting in the Santander account at 3%.

Very good summary.

Just in case you are unaware, you can stick £800 a month into 6% AER Regular Savers if you use what HSBC, FD and M&S are offering.

joe134

jimmyboy420 wrote: »

You seem to be agreeing with me. Interest paid in theg 2015/16 tax year will beg taxed.

It's 6%. The interest rate is 6%. Yes, some money is invested for less than one year. But that doesn't stop the interest rate being 6%. If you know of any higher rates available on cash, please let me know.

We aren't in agreement in respect of tax, I knew it was year end, but,your OP, was about, tax free, interest.on RS, which is the same, year end;;irrespective of the rate given.
At the end of the year, whether you pay tax monthly, or, annually, or, whatever, the tax implications are the same, ;
The tax will be assessed over the year, and you will pay 20% of earned income, minus your allowances, at year end.You may be able to jiggle a few pounds extra by, shifting it from A>B ,as Aretnap has stated, but, you cannot alter the tax to be paid in that year.whatever the rate.

FOREVER21

jimmyboy420 wrote: »

You seem to be agreeing with me. Interest paid in theg 2015/16 tax year will beg taxed.

It's 6%. The interest rate is 6%. Yes, some money is invested for less than one year. But that doesn't stop the interest rate being 6%. If you know of any higher rates available on cash, please let me know.

The amount of interest paid on these regular savers has caused numerous questions and has been discussed on many MSE posts.

Yes the rate quoted is 6% but as the money only builds up month by month it is not 6% of the total saved at the end of term.As a rule of thumb it is generally accepted that the actual interest overall paid is half the advertised rate ie 3% with this one.
A better return for cash can be obtained from the many current accounts on offer, Nationwide at 5% for example.

le_loup

FOREVER21 wrote: »

Yes the rate quoted is 6% but as the money only builds up month by month it is not 6% of the total saved at the end of term.

The interest rate is 6%. 6%, not 3%


If you had an ordinary savings account and put in £100 today and another £100 in six months time, would you say the interest rate is half the advertised one? Of course not.


So, just to be clear, the rate is 6%.

joe134

le_loup wrote: »

The interest rate is 6%. 6%, not 3%


If you had an ordinary savings account and put in £100 today and another £100 in six months time, would you say the interest rate is half the advertised one? Of course not.


So, just to be clear, the rate is 6%.

6% per annum pro rata.
per month.;;not what it says on the tin, and can be bettered NW 5%.Lloyds 4%, etc..per annum not pro rata.

FOREVER21

le_loup wrote: »

The interest rate is 6%. 6%, not 3%


If you had an ordinary savings account and put in £100 today and another £100 in six months time, would you say the interest rate is half the advertised one? Of course not.


So, just to be clear, the rate is 6%.

Are you deliberatly trying to be obtuse? I am talking about the interest rate actually received on a regular savings account.

£300 saved each month over 12 months= £3600, interest earned on regular saver @6% = £100.67gross.

If that is what you accept as a genuine 6% return, then you are a bankers dream customer!

Eco_Miser

FOREVER21 wrote: »

Yes the rate quoted is 6% but as the money only builds up month by month it is not 6% of the total saved at the end of term.

True. It's a rate of 6% per annum, that is, 0.0164+% per day on the current balance, just over 16p per £1000 per day. A 5% account would pay under 14p per day per £1000 on whatever was in the account.

FOREVER21 wrote: »

As a rule of thumb it is generally accepted that the actual interest overall paid is half the advertised rate ie 3% with this one.

It may be generally accepted, but that doesn't make it right. It was generally accepted that the earth is the centre of the universe.

FOREVER21 wrote: »

A better return for cash can be obtained from the many current accounts on offer, Nationwide at 5% for example.

NO! 6% is greater than 5%, so under the same circumstances - paying in a fixed amount each month - the regular saver will beat the current account.

If you've a lump sum, it's different, but even then you'd be better off transferring as much as possible to the 6% account.

Archi_Bald

FOREVER21 wrote: »

The amount of interest paid on these regular savers has caused numerous questions and has been discussed on many MSE posts.

Yes the rate quoted is 6% but as the money only builds up month by month it is not 6% of the total saved at the end of term.As a rule of thumb it is generally accepted that the actual interest overall paid is half the advertised rate ie 3% with this one.

You are completely confusing the AER with the return an account yields.

The AER of a regular savings account cannot be calculated by dividing the return by the end balance of the account (which is what you have been doing). The AER of e.g. the FD regular saver is 6%. End of.

If you want to help people to understand the return they get from a Regular Savings account, it's better to point them at a Regular Savings calculator than confusing the issue by say saying the AER isn't really the AER.

FOREVER21 wrote: »

A better return for cash can be obtained from the many current accounts on offer, Nationwide at 5% for example.

You are comparing apples with pears. Your statement is only true if you pay more money faster into the 5% AER account.