Annual or Monthly Interest?

20vt-rs

I am a bit confused how interest is worked out and what is better, annual or monthly? I currently have two savings accounts running, both with similar amounts in them. One is an ISA with the Halifax, rate is somewhere around 4.75%, the other is a web saving account with Natwest, rate is probably up around 5.something, but I'm not 100% sure.

Now on the Natwest, I get the same amount of interest in 3 months than I received for the last year on the ISA. Would I be better ditching the ISA and putting all the money into the Natwest one? I thought ISA's were more efficient for savings?

Aegis

"Better" isn't something you can use to describe the difference between monthly and annual interest. Whichever suits your needs and then offers the best interest rate will be better for you.

That said, your ISA is a shockingly bad interest rate if it's at 4.75%, and you should contact a better ISA provider saying you want to transfer your cash ISA to them, as you could earn close to 2% extra income (i.e. 6.5% total or thereabouts) and still keep that interest tax-free.

Under no circumstances should you close the ISA or withdraw your money from it without knowing why you are doing so. This is because your contribution is limited each tax year, currently to £3000. If you deposit £3k and withdraw £2.5k the day after it clears, you're stuck with only £500 in your ISA until the next contribution allowance comes through in April.

If you're not planning on using your ISA allowance this year, then taking your money out and going to a new provider with "new" money might be a good idea for you. Just remember to think carefully about it before you lose that tax-free status on your existing ISA savings.

You can also beat the Natwest rate and get up to 6.3% or so if you look at accounts like Icesave, ICICI and Sainsburys. Just remember that this is taxed, so even though it may seem higher than an ISA you can transfer into it, you will lose money to income tax.

Hope this helps!