Tax on savings - fixed vs ISA
in Savings & investments
8 replies 272 views
I'm just trying to get my head around the tax rules on interest on savings and the best savings account to use to give the best return. I'd appreciate someone checking my working out . Let's say I have £30,000 in savings, and am a basic rate tax payer. Let's also say that the interest rate on a fixed rate savings account is 4.5%, and the interest rate on a cash isa is 3.8%.
Interest gained on fixed rate savings account: £1,350
Interest gained on cash ISA: £1,140
I would then have to pay tax on £350 of the fixed account scenario, which would be £70. Then I would subtract that £70 from the £1,350, which would be £1,280. So, if I were to invest 100% of my savings in one or the other of those accounts, I should still go for the fixed account, as despite the tax that would be owed, £1,280 is more than £1,140. Have I got that right?
I suppose the smart thing to do (assuming the above calculations are correct), is to open up both accounts and bung as much as possible into the fixed before getting taxed, and the rest in the isa.
Thanks for any help and advice all
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