Paragon: 120-day notice / fixed-rate rather than ISA?

jjlothin

I have a cash ISA which has been locked up with Coventry for 3 or 4 years which is just about to mature, worth nearly £11k now.

I don't need immediate access to the money and I'm thinking of putting it with Paragon, as they seem to be at or near the top of current interest charts.

Given that I'm never going to get anywhere near the interest tax limit, is there any reason why I shouldn't move it into either their 120-day notice account (@ 1.66%) or their one-year fixed rate (@ 1.86%) rather than keeping it as an ISA?

sjp999

None whatsoever - in fact you could do a whole lot better if you spread it about a bit - see the top interest hot links at the top of the forum for the range of accounts that pay way more interest than you're currently looking at.

Some effort involved but you'll probably double your interest income.

ColdIron

The Personal Savings Allowance has rendered cash ISAs redundant for many people. If you are unlikely to exceed that allowance there aren't many arguments for retaining your ISA. One might be that you cannot tell what the tax or interest landscape will be several years down the road (if I can mix my metaphors) and sheltering a large amount of cash could come in handy but with the annual ISA allowance of £20,000 this probably isn't an immediate concern for you as you can easily put it back in. Another argument would be that interest in an ISA is not counted towards your taxable income whilst interest from a non sheltered account could tip you into a higher tax band if you were close to the threshold

Based on what you've said I'd just chase the highest rate. You do know that you can do much better than a fixed term account by splitting it across come current accounts and regular savings accounts?

https://www.moneysavingexpert.com/savings/which-saving-account#savingsfountain

jimjames

Far better outside an ISA and also far better rates available than the ones you've mentioned so yes a cash ISA is pointless in your situation. If you're prepared to keep locking money up then you may want to look at a S&S ISA instead

jjlothin

Many thanks to you all for your very useful replies! :T
I've already got odd bits here and there in different accounts (eg, £1500 in the TSB) but I'm reluctant to branch out further as I don't really have the time at the moment to keep a proper eye on things. I also have an S&S ISA ...

I don't know how these kind of questions got answered before the MSE Forum!

cloud_dog

I've moved sufficient monies out of my mother's cash ISAs so as to generate just under the £1k interest limit (combination of easy access and 1yr fixed rate).

EDIT: Even if she were to go above the limit the difference in rates at the moment might mean it is financially better to be taxed than take a lower IR. I will monitor the situation as time goes forward.

ColdIron

cloud_dog wrote: »

I've moved sufficient monies out of my mother's cash ISAs so as to generate just under the £1k interest limit (combination of easy access and 1yr fixed rate).

Can mum take advantage of the Starting Rate for Savings?

Terry_Towelling

Hi there. I have an easy access, a 1 year and two 120 day notice account with Paragon. I have decided to treat the 120 day accounts as if they were 4 month fixed rate bonds. To retain some flexibility with the cash I deposit it and then immediately serve notice to withdraw it 120 days later. You can always cancel the notice at any time and leave it in there. I also have the interest paid into my nominated account. This has the advantage that you will always know how much is going to be in the account in the future making it easier to serve notice on the full amount at any point. You can obviously pay the interest back in as a deposit if you choose to do it this way. Serving notice immediately also gives some flexibility if a new version with a better rate comes out in the interim as you might be able to move it to that when the notice is served. Obviously though, if you know you're not going to need the cash at all then a 1 year fixed rate is probably better. More than a year is dicey given that interest rates may move up in that period. Having said that, Brexit next year might mean that things get tough and rates drop again. It's a tough call but 1 year should be OK.

ctdctd

One slight advantage of fixed rate cash ISA's is that they have to give you a get out clause.

So, the best 5 year ISA fix at the moment is 2.65% but you can get out for the loss of a years interest.
So, IF interest rates shot up in a year or two, there would some way of escape.

Terry_Towelling

There is something else to consider with the interest tax allowance that may affect your decision to use ISAs. This is particularly important for low-earners and, probably, many pensioners.


I'm not sure everyone fully understands it - not even sure I do - but your starting rate for tax-free interest is actually £5k. £1K is the minimum you are allowed to receive tax free if you are a basic rate payer but, in theory, a basic rate payer could receive as much as £5K tax-free interest.


I think it works like this. If your income (excluding interest) is, say, £11850, you can receive £5K in interest tax free. For every pound your income (excl interest) exceeds the £11850 tax allowance, you have to deduct £1 from your £5K starting rate. Thus, if your income (excl interest) is £13850 then you lose £2K from your £5K starting rate, meaning you can receive up to £3K in tax-free interest.


If your non-interest-income is £15850 or above (but still in basic rate region) you can only have £1K in tax-free interest.


If your only source of income is interest you will have to pay tax on anything above £11850 because you are then over the tax threshold and over the £5K starting rate - but I'm not sure about that.


There are similar rules for dividend income - you can have more than £2K tax free if your overall income is low.


Please don't rely on my words when making your decisions but just use them as a spur to get HMRC to clarify things for you. What I'm saying is I think I've got it right but am not entirely sure - like so many things in my life.


I'm going for a lie down now.