ISA v Fixed Rate Bond

GardenLady

I have £20,000 to invest, If I take out an 5 year fixed rate ISA at 2.15% will this earn me more than a 5 year fixed rate Bond at 2.45%. I pay 20% tax? Can anyone help or tell me how I work this out?
Sorry Math is not my strong suit.
Thanks
GardenLady

badger09

GardenLady wrote: »

I have £20,000 to invest, If I take out an 5 year fixed rate ISA at 2.15% will this earn me more than a 5 year fixed rate Bond at 2.45%. I pay 20% tax? Can anyone help or tell me how I work this out?
Sorry Math is not my strong suit.
Thanks
GardenLady

I think you mean £20k to save, rather than invest.

To keep it very simple;)
2.45% after 20% tax = 1.96%

1.96% is less than 2.15%, so theoretically, you'd be better off with the ISA.

BUT, as a basic rate taxpayer you can have £1000 per annum savings interest tax free. So, unless you have other savings which would take your interest over £1000, then effectively your FR bond will earn you 2.45% tax free.

TheShape

GardenLady wrote: »

I have £20,000 to invest, If I take out an 5 year fixed rate ISA at 2.15% will this earn me more than a 5 year fixed rate Bond at 2.45%. I pay 20% tax? Can anyone help or tell me how I work this out?
Sorry Math is not my strong suit.
Thanks
GardenLady

badger09 wrote: »

I think you mean £20k to save, rather than invest.

To keep it very simple;)
2.45% after 20% tax = 1.96%

1.96% is less than 2.15%, so theoretically, you'd be better off with the ISA.

BUT, as a basic rate taxpayer you can have £1000 per annum savings interest tax free. So, unless you have other savings which would take your interest over £1000, then effectively your FR bond will earn you 2.45% tax free.

Just a thought,

Will the interest definitely be added to the account/available to withdraw each year? If it's not made available each year it could all become taxable at maturity.

Dazed_and_confused

Depending on exactly how much 20% tax you pay then you could have upto £5999 of taxable interest without having to pay any tax on it.

If you are close to paying higher rate tax then this may be reduced to £500.

Note the interest is not "tax-free" in the same sense as an ISA. It is taxable income but may be taxed at a 0% tax rate.

newatc

Five years seems, to me, to be a long time to lock into low rates and the trend is likely to be higher.

badger09

TheShape wrote: »

Just a thought,

Will the interest definitely be added to the account/available to withdraw each year? If it's not made available each year it could all become taxable at maturity.

Fair comment. OP would have to check T&C.

As I said, as usual, I was trying to keep it simple rather than cover all possible scenarios.