Advice on Redundancy Payout (where to put the money?)

Tra77

My dad has recently been made redundant, his payout was approx. £39K which has been deposited into his regular bank (Yorkshire Bank). Immediately bank contacted him trying to get him to invest in one of their high interest account. My dad has agreed to see them for advise, however he doesn't want to put the money into such an account whereby he can't access it for 2-3 years, as he doesn't yet have another job.
I've told him to leave the money in a regular account (until he's sorted with a job/his finances) however there will be other banks that can offer him a higher interest rate than Yorkshire. Though someone has told him that if he moves his money from his existing bank to another then he will have to pay a higher rate of tax - is this correct?

Any additional advise/suggestions would be most appreciated!

Steve_xx

Your dad will not have to pay a higher rate of tax if he switches banks. Your dad will pay tax on any income or on any earnings from the banked money that in total take him over the various tax thresholds. Banks deduct tax at 20% on any interest earned. Your dad is then responsible to pay any additional tax if he is a higher rate tax payer. For him to become a higher rate tax payer he would need to have an income in excess of about £38k per annum.

There are several higher rate accounts available that would only tie him in for 6 months to a year. There are also some good accounts with no tie-in, like ICICI Banks 6.41% rate. If he wants to tie some up for a year then the same bank will give him 6.85%. So he could put some in one account and some in another if he so chose to.

http://www.icicibank.co.uk/

He should also put his £3000 ISA allowance into an account, because this is tax free. The best accounts currently are:

National Savings Direct ISA - paying 6.3%
http://www.nsandi.com/products/disa/index.jsp

or

Kent Reliance Building Society's Direct Variable Rate ISA - paying 6.21%
http://www.krbs.co.uk/directisa.aspx

Tra77

Many many thanks for that!
Just one other question, is it possible to have more than 1 isa?

Steve_xx

You can open one ISA per tax year.

So, if you open one with say Kent Reliance this year, you can add to it next year or you can have another one next year with another bank. Some banks allow you to transfer in your existing ISA's, whereas others don't allow this. Kent Reliance allow you to transfer existing ISA's to it. But the National Savings Dorect ISA does not allow tranfers of existing ISA's.

You can put a maximum of £3000 in a mini ISA this year. Next year you can put £3600 into a mini ISA.

If you take any of the money out of the ISA, then you cannot put it back.