Monthly Fee and Bank interest received

NDJinski

Several bank accounts offer a high interest rate and charge a monthly fee. So 3% on £20,000 is £600 but if you are a basic rate taxpayer (and have used your £1000 tax free) you will pay 600 x 20% = £120 tax as well as the monthly fees £60 so in effect you are only getting £420 which is 2.10%. Always worth looking at the cost of these accounts as they can greatly reduce or outweigh the benefits.

badger09

NDJinski wrote: »

Several bank accounts offer a high interest rate and charge a monthly fee. So 3% on £20,000 is £600 but if you are a basic rate taxpayer (and have used your £1000 tax free) you will pay 600 x 20% = £120 tax as well as the monthly fees £60 so in effect you are only getting £420 which is 2.10%. Always worth looking at the cost of these accounts as they can greatly reduce or outweigh the benefits.

Also worth keeping up to date with the T&Cs of such accounts.

For example, the one you mention has been paying only 1.5% for some time now;)

eskbanker

NDJinski wrote: »

Several bank accounts offer a high interest rate and charge a monthly fee. So 3% on £20,000 is £600

You appear to be focusing specifically on the Santander 123 there, which used to pay 3% on up to £20K but ceased to do so last year and now only pays 1.5% before monthly fees and any tax. I can't think of any other accounts with decent interest where there's a monthly fee though?

NDJinski wrote: »

but if you are a basic rate taxpayer (and have used your £1000 tax free) you will pay 600 x 20% = £120 tax as well as the monthly fees £60 so in effect you are only getting £420 which is 2.10%.

If you're earning more than £1,000 in interest (in current market conditions) then you're doing pretty well anyway in that it'll typically take north of £50K capital to do so!

NDJinski wrote: »

Always worth looking at the cost of these accounts as they can greatly reduce or outweigh the benefits.

Agreed, but this cuts both ways - the Santander 123 also has the cashback feature, which offsets the monthly fee for many.

EachPenny

eskbanker wrote: »

I can't think of any other accounts with decent interest where there's a monthly fee though?

Club Lloyds? Although unlike the 123 account you can get the fee refunded if you meet all the T&C's.

I suppose a pedant fan of Santander could also argue the 123 fee is effectively refunded if you optionally earn the cashback, but that possibly is stretching the definitions a bit.

msallen

eskbanker wrote: »

If you're earning more than £1,000 in interest (in current market conditions) then you're doing pretty well anyway in that it'll typically take north of £50K capital to do so!

I deliberately keep my cash balance (in current accounts and associated regular savers) at an appropriate level to earn a few quid short of £1000 pa in interest (about £980) and that requires an average balance of a smidgen over £27K, although it varies a little from month to month according to whether or not there's a regular saver maturing.

eskbanker

msallen wrote: »

I deliberately keep my cash balance (in current accounts and associated regular savers) at an appropriate level to earn a few quid short of £1000 pa in interest (about £980) and that requires an average balance of a smidgen over £27K, although it varies a little from month to month according to whether or not there's a regular saver maturing.

Fair enough, well done! I was just plucking out of thin air what I thought would be a typical average interest rate of 2% from £50K but yes, if you optimise all the 5% regular savers then a higher average return should be achievable with less capital, although I'm not sure many would go as far as arranging accounts with a specific objective of earning just below PSA (but I'll probably now be proved wrong by some indignant responses!).

Ben8282

Arranging not to earn more than £1k pa interest would seem a rather foolish thing to do to me as even though the excess interest will be taxed, unless it was taxed at 100% or greater you will still be making some profit on the money albeit at a lower rate.

[Deleted User]

Hi,

think I'd rather have 80% of something than 100% of nothing.

badger09

msallen wrote: »

I deliberately keep my cash balance (in current accounts and associated regular savers) at an appropriate level to earn a few quid short of £1000 pa in interest (about £980) and that requires an average balance of a smidgen over £27K, although it varies a little from month to month according to whether or not there's a regular saver maturing.

What do you do with any excess cash? Invest it? Pay it into a pension? Spend it? Give it away?

Ben8282 wrote: »

Arranging not to earn more than £1k pa interest would seem a rather foolish thing to do to me as even though the excess interest will be taxed, unless it was taxed at 100% or greater you will still be making some profit on the money albeit at a lower rate.

[Deleted User] wrote:

Hi,

think I'd rather have 80% of something than 100% of nothing.

Agree with both. It sounds like tax tail wagging the interest dog, but obviously depends what OP does with any excess:cool: