Santander 123 is now 3% TAX-FREE for most – is the £5/mth fee worth it?

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.




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  • ds1980ds1980 Forumite
    1.2K Posts
    Am I missing something? Someone "earning" £500 has circa £25k in bills?!
  • pathtofreedompathtofreedom Forumite
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    ds1980 wrote: »
    Am I missing something? Someone "earning" £500 has circa £25k in bills?!
    You don't spend £25k a year in bills, you can put £20k in to the account as savings and earn 3% interest on that. Then depending on what bills you have you can also get different levels of cashback on those.

    Before april you'd lose 20-45% of the interest in tax depending on what rate tax payer you are. 20% automatically, then the rest by declaring it. Now though you can get the first £500/1000 tax free each year, so it currently is more attractive that cash isa rates this year.
    MFW OP's 2017 #101 £829.32/£5000
    MFiT-T4 - #46 £0/£45k to reduce mortgage total
    04/16 Mortgage start £153,892.45
    MFW 2015 #63 £4229.71/£3000 - old Mortgage
  • ds1980ds1980 Forumite
    1.2K Posts
    ah he was using the interest accumulated on savings as well and not simply household bills. I wouldn't be putting any savings into cash as it'll get eaten by inflation. Much better and higher returns elsewhere but ta.
  • Nick_CNick_C Forumite
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    ds1980 wrote: »
    I wouldn't be putting any savings into cash as it'll get eaten by inflation.

    CPI inflation = 0.3%
    RPI inflation = 1.3%

    The Santander 123 account pays 3%, or 2.7% if your DDs don't cover the £5 a month fee.

    So no, your savings wont be eaten by inflation.

    There are plenty of accounts paying up to 5%.

    If you know a risk free way of getting a guaranteed return after inflation of up to 4.7%, do please share it with us!

    Until you do, I will be keeping a fair amount of my capital in cash (although most of it is invested).
  • ds1980ds1980 Forumite
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    I was being slightly facetious and it's a fair point but it is a well known fact that keeping cash for any length of time is a mugs game. Those inflation figures are make belief. Historical averages of inflation since I was born is 4% which is a much truer indicator of whats happening to your hard earned. As an aside my corned beef went up 5% last week.....not happy!
  • 123 a/c is the best on the market by miles, its quite simply, if you have the max allowed in the a/c all year round(£20,000) x 3% =£600 - less 20% tax = £480 - £60 annual a/c fee = £420 per yr clear profit + on top of that you have all the interested paid out for your household bills, petrol/diesel , shopping etc, which will cover the £5 per monthly fee easily.

    Santander 123 a/c is a no brainier, I've had an online a/c approx 7 yrs now !

    If anybody has a BETTER a/c or return, please inform me and I will switch over, loyalty begins at my front door.
  • roddydogsroddydogs Forumite
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    Ive actually received the interest without deduction for the last month, although technically it didnt start till 6/4.
  • Can anyone help with something I'm not quite understanding? in the key questions section of the main article there is the below paragraph about having more than 20K in the account

    "What if I've more than £20,000? Any extra above £20,000 gets no interest, which means that if you just left £20,000 in the account the whole time, you'd actually get the gross rate of 2.96% – as the monthly interest earned would take you over the £20,000 limit (and therefore wouldn't be able to earn interest itself). This would mean that instead of getting £600 interest in a year that you'd get if the interest could compound, you'd only get £592."

    Does this mean the interest would decrease further the more over 20K you are? I would have assumed you get your 3% on the first 20K and anything over just has no bearing? Does this mean I would need to keep an eye on the account and keep moving out the interest I earn to keep that account at 20K?

    I can't get my head round this bit so if anyone out there can provide a layman's explanation of how this would work that would be great.

    Thanks
  • Nick_CNick_C Forumite
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    The rate of interest is the same whether you have £10K or £20K in the account.

    If you had £25K in the account, you would only be getting interest on £20K, so the effective rate of interest on your £25K would be lower.

    Essentially, no interest on any balance over £20K, so no point in keeping more than £20K in the account.
  • General_GrantGeneral_Grant Forumite
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    roddydogs wrote: »
    Ive actually received the interest without deduction for the last month, although technically it didnt start till 6/4.

    What is important is the date the interest is paid, not the time any of it was earned. When did you receive the payment - before 6 April?
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