The Top Fixed Interest Savings Discussion Area

BooJewels

20122013 said:

BooJewels said:

@refluxer beat me to it - I was going to make the same suggestion - if you have no income, why not get interest paid away monthly and use this as income and you can earn up to £18,750, before you'd pay tax on anything above that. 

If you max out your ISA allowance each year and maybe put some in PBs (also tax free, max £50k holding) you'd have to have towards half a million earning interest elsewhere before HMRC would trouble you for some tax.  If you added your full allowance to ISAs each year, you'd progressively reduce your potential taxable interest.  So your 5 year plan would see £100k (depending on what Rachel does in the budget) beyond tax.

BooJewels @refluxer and @masonic who had alerted me about better to get a monthly paid interest account. 

As my earlier post, the monthly interest paying account is Natwest which pays only 4.2% comparing to others which pays 4.45%.   May I check do you mean to put £50K from the total of my cash ladder into a PB? as it will be tax free and can withdraw  anytime to fund my yearly ISA allowance or whenever I need the money?   

If I my total interest will be below the  £18,75 pa figure, would it be better to get bank interests guarantee or PB prizes (tax free)?   

I'm a bit confused by what you're intention is and what you mean by your particular ladder.  But to explain a couple of my own comments - I suggested PBs purely as the prizes are tax free, so they work a bit like an unpredictable ISA. The returns aren't as good as maybe they were a year ago, but might have a purpose if you really want to avoid tax and are close to your allowance.  But if you're going to add to an ISA each year to max your allowance, it would make better sense to fund it from a taxable source first.

If you're not going to be earning more than your assorted tax allowances, then just maximise the returns you can get.  I personally don't care that much about avoiding tax at the moment, I'd actually be happy to be earning that much in interest alone.  I'm just maxing my ISAs now, because once I start getting SP,  then it will be more important and the more I can get inside that wrapper now helps me in the future.

You mentioned a lower rate for monthly paid accounts - that's probably always going to be the case, as that interest won't be compounding - I.e the AER, whereas the monthly paid rate that's quoted is the gross, without being allowed to compound.  If you don't need the interest for income, then even if it's monthly paid, leave it in the original account to compound.

Only you can decide what to do, depending on your circumstances and needs.

Eco_Miser

Just remember that all the suggestions above are based on the current tax rates and allowances, they could change adversely in the forthcoming budget.