Best savings option and understanding tax on savings

xylophone

I'm pretty sure Coventry BS are "only" offering 2.25% (from Friday) on that cash ISA.

Thanks - missed out second 2!

Daliah

km1500 said:

on 48000 at 2.1% in Chase you will earn £1008 per year

if yiu move it all to eg Santander at 2.75% you will earn £1320 in a year

Rates are likely to change early November anyway (BOE meeting)

Takes all of 2 days to xfer £48k from Chase to Santander (£25k max payment limit / day at Chase). I would do it as it sounds an easy £300. I would also have removed my £48k many months ago from Chase but this is obviously not an option now for OP's BF. 

NurseMoneySaver1122

I would also have removed my £48k many months ago from Chase but this is obviously not an option now for OP's BF. 

We actually only opened it on 30th June, when at the time, it was the highest interest easy access account.

So may I ask why you would have removed it many months ago?

kaMelo

By the end of July Virgin was offering 1.71%, by the end of August there were a good few offering better rates than Chase with Gatehouse topping the table for a short while offering 2%, not long after that Al Rayan was offering 2.1%. 
Not everyone will chase rates for small increases but an account paying 0.5% more is significant enough for many to move money. On a sum like £48,000 a 0.6% difference in interest offered by Al Rayan would give £24 per month more than by leaving it in Chase @ 1.5%

NedS

Depending how long you are prepared to lock up the cash for, and when you will need it for the mortgage deposit, you may want to consider purchasing individual UK gilts. A 2 year UK Treasury Note (e.g, TN25) gilt is currently returning around 4% for a Jan 2025 maturity, significantly better than the rates discussed above, and as the coupon rate is only 0.25%, the rest comes by way of a tax free capital gain at maturity so there is no (or minimal) tax implication no matter how much you earn even when held outside of a tax wrapper (e.g, ISA).

You could sell the gilts before then at market value if you need the cash earlier, but returns at that point are not guaranteed and dependent on market value at the date you sell, although duration risk should be small given the relatively short duration.

NurseMoneySaver1122

So I hadn’t even realise that we are in the potential zone to be paying tax on our savings now tbh! Although, we have been on much lower interest rates in the first half of the tax year, so I think we will still be just under this tax year (I think!).

I know in more recent years, ISA interest rates don’t tend to come close to savings accounts. So if becomes the case moving forward, I’d prefer to only put in the ISA what is necessary to avoid paying tax on savings (which will involve some statement digging and some maths I guess!).

How is tax deducted/calculated from savings interest? Presumably they calculate at the end of the tax year and then send you an “underpayment” letter?

RobM99

Don't get fixated on ISA.  Better to pay tax on 4% than 2% tax free!

Santander has closed the 2.75% easy access. Ford now offer 2.5%.
Taxis paid via tax code (It has for me, anyway).

pecunianonolet

The question is if you both basic, higher or a mixture of of both tax payer. I will bump into higher by Feb/March (bonus payment dependent) but will be just below the 500 PSA limit for this tax year. My partner is basic and even with the 1000 PSA allowance she will stay in basic. 

Interest counts as income so if you earn close to the threshold the interest income could bump you into the next higher category.

I for sure next year will be higher so the strategy is that I just keep enough funds in my name to max out on my limit, the rest is going to an account in her name to max out on the higher PSA and what is left we either accept to pay tax on it (her basic rate) or move into a cash ISA. You need to to the math to understand if ISA is worth it or if you better pay a bit of tax because even with tax overall profit is still higher.