Cash ISA or not

bdb47

I and my wife have cash ISAs maturing in the next few weeks, the interest is above the £1000 tax free allowance for us but normal savings accounts with a one year fix have a better interest rate than cash ISAs. Are we better to use a normal savings account and pay the interest or should we transfer to another ISA.

MX5huggy

What rate of income tax will you pay on the savings outside ISA? If 20% then:-

Take the best ISA rate and multiply by 1.25 to find the savings account rate you need to beat it. 

However with rising interest rates and what I presume are large Cash ISA’s which would take more than 1 year to get  back into ISA’s I would be reluctant to remove the funds from ISA.

Expotter

At the moment, the best 1 year fixed rates are just under 3%, equivalent to  2.4% after 20% tax (which also happens to be around the best fixed ISA rate for 1 year), so an ISA that pays more than 2.4% would be better. I would use the £1000 tax free allowance first and keep the rest in ISAs, unless the ISA rates increase substantially and you're prepared to have your tax code adjusted in order to pay the extra tax owed in subsequent years. In my opinion it's a hassle I'd rather do without, unless of course I was much better off.

Expotter

Regarding my previous post, I am assuming that your taxable income is more than around £18k and you're not entitled to the starter savings allowance of £5k. If that's not the case the situation is potentially quite different.

This is quite a good article on tax on savings

 https://www.which.co.uk/money/tax/income-tax/income-tax-on-savings-and-investments/tax-on-savings-a4gts3t6h06x

bdb47

Yes my taxable income is around the 18K mark, thank you for your comment.