Managing your PSA

masonic

oli356 wrote: »

Where is my maths failing me though with what you said...(assuming I understand correctly)

£1k cash at 2.03 is £20.30 - 20% tax (£4.06) so net interest = £16.24
£1k cash at 3.30 is £33 - 40% tax (£13.20) so net interest = £19.80

Wouldn't the 40% tax need more like 2.7%?

Why are you applying 20% tax to the cash ISA?

danm

oli356 wrote: »

Aha right yes, I'm with you now. So yes I wasn't evaluating the net return.

So seems like a 2.34~% saver with 20k at 40% tax would be the point where the savings account wins over the ISA.
Both First Direct and M&S do 2.75% if you switch, but I don't know if I can be bothered to try get 2 more donor accounts and switch to them just to put in a couple of grand each.

On the savings account page on MSE, would need to go for a 5 year fixed rate with UBL UK, the only one which is higher than 2.34%. Maybe there is some I've missed but as a place to put in a lump amount, looks like the ISA is winning.

You also need to consider that your ISA allowance is use it or lose it.


While current year cash based returns may not be compelling, the ability to sheild returns in the future should not be dismissed. It all depends on strategy, savings propensity and long term goals, but for me it would be a simple decision to forgoe £200 of savings interest now for the ability to ensure potential CGT and divident growth (as i would be looking to move to S&S ISA) are tax free in the future.

oli356

masonic wrote: »

Why are you applying 20% tax to the cash ISA?

Good question, no idea. Ok so yeah, £1k lump, 2.03% cash ISA after a year is £20.30 interest.

3.3% savings account with 40% tax is £19.80 interest. 3.4% takes it to £20.40.

Got my FlexDirect card today and when I logged in to online banking I found out I never closed my old Nationwide account from when I was a kid (FlexAccount now), so will most likely use that to switch to First Direct or M&S to get one of their 2.75% accounts anyway. I need to sit down properly and plan out when and how I need to move money between all these accounts!

Dazed_and_confused wrote: »

Have you checked that income within your savings nil rate band (aka Personal Savings Allowance) won't actually increase your overall tax liability?

There are a variety of situations where savings income taxed at 0% increases your tax liability.

They don't affect everyone but some aren't unusual and impact those with larger incomes and can mean that the £500 taxed at 0% increases the tax due by £100, an effective rate of 20%.

Short answer, no. I guess I'm kind of winging it for now with these savings accounts and with my new salary (which will push me into higher tax rate after bonuses), I do need to get a better understanding of all the tax stuff. Embarrassingly I don't have a full grasp of it yet, though I need to start getting it

danm wrote: »

You also need to consider that your ISA allowance is use it or lose it.

While current year cash based returns may not be compelling, the ability to sheild returns in the future should not be dismissed. It all depends on strategy, savings propensity and long term goals, but for me it would be a simple decision to forgoe £200 of savings interest now for the ability to ensure potential CGT and divident growth (as i would be looking to move to S&S ISA) are tax free in the future.

Strategy at the amount isn't really figured out and nor is the goals. Only 25 but no house, my thinking for the past few years has been that I would have enough money for a deposit, but getting a mortgage big enough by myself for somewhere I would want to live isn't going to happen in my area. So there is no real goal at the moment as the one thing I 'need' I don't see how I can achieve by mself... without multiplying my savings by 4/5 to pay cash for a house

S&S ISA is something I've looked into, but don't have a good enough understanding yet I don't think to proceed with. I want something 90% set and forget. It might just be £15k and do it for 5/10 years, not sure.

oli356

So to try and summarise, whilst having another question or two.... and hopefully people can shout out if I'm chatting nonsense.

So I have all the accounts mentioned in the OP, plus the 2 ISA's. As far as I understand it makes sense to stick to the HTB ISA as the interest is 2.5% and considering I've got £10k+ in there, it will out-perform a 1.5% ISA with £16k in (allowance of £20k minus LISA contribution).

I only will use £6,400 of the ISA allowance per year between the LISA and HTB.

With the savings on the first 5 accounts below, I will have used £360~ out of £500 of my PSA. Whilst I've upped my pension contribution to 10% as of next month (company puts in 8.7% or something), I still might be paying a bit of tax at 40%. I don't want to increase the contribution further and try to get under the 40% limit because will be saving for a house.

I opened a Marcus account to put some money in and probably will have to pull from this as I might need some extra cash after money leaves my account to go to the regular savers. My plan is to only keep £10k in this account max, as that is £135 interest, so my PSA will be basically used up.

I've got £40k in premium bonds, see if I get any luck there.

But if I have any spare money now, with my PSA maxed out, paying what I can into the ISA's (not maxing the allowance due to HTB limit), I can buy another £10k of premium bonds. But after that will I just need to keep money in an account with 0% interest? Not sure if there were other options. I might chuck a grand or two into S&S ISA and leave it there for 5 years, I'm not sure yet.

TSB Classic Plus (3% up to £1,500): £45 interest
Nationwide FlexDirect (5% up to £2,500) £125 interest
HSBC Regular Saver (2.75%/£250 per month): £44.69 interest
Principality Regular Saver Bond 20 (2% £500 per month): £64
Coventry Building Society Savings (2.5% variable, £500 per month): £81.27 interest

Marcus saver (1.35%) - keeping this under £10k (£135 interest)

Lifetime ISA - £4k per tax year will go in
Natwest HTB ISA £10.6k


£40k in premium bonds

Dazed_and_confused

But after that will I just need to keep money in an account with 0% interest?

What is your logic for that?

oli356

Dazed_and_confused wrote: »

What is your logic for that?

Good question, guess it makes more sense to put it in some savings account even at 1.5% and pay tax on the interest than not do anything at all?

Dazed_and_confused

Unless you are at some weird cliff edge situation such as where extra interest itself will change your PSA rate band from £1,000 to £500 isn't paying 40% tax on something better than paying 0% tax on nothing?

oli356

Dazed_and_confused wrote: »

Unless you are at some weird cliff edge situation such as where extra interest itself will change your PSA rate band from £1,000 to £500 isn't paying 40% tax on something better than paying 0% tax on nothing?

Well I'm expecting PSA rate band to be at £500 anyway, regardless of the interest itself changing the band for me. But yeah ... 40% tax of something is better than 0% of nothing .... I looked at myself dazed and confused after your response .... 0 logic

xylophone

Type LITR Savings and dividends into Google and pick up the 2018.19 Final pdf guide.

wiseonesomeofthetime

I will exceed my PSA next year when fixed term savers mature.

Considered the tax element, as I hate giving the government money in exchange for no work on their part, however, finally decided that 80% of my interest was better than 0%.

Mitigated where I could using ISA allowance.