Annual vs. upon maturity interest payments at a fixed term savings account 20 January at 1:37PM edited 23 January at 10:56AM in Savings & investments 4 replies 109 views

sgog

Suppose that I have £10,000 I'd like to put into a 5-year fixed term savings account and I have a £500/y savings allowance.

One option is to get 4.5% when it matures, and another is to get 4.4% that is paid annually.

Am I correct to understand that the second option is better since the first one would mean I get all the interest at once and, although compounded, get taxed and the second pays just under the allowance so I get to keep it all tax-free?

Dazed_and_C0nfused

sgog said:

Suppose that I have £10,000 I'd like to put into a 5-year fixed term savings account and I have a £500/y savings allowance.

One option is to get 4.5% when it matures, and another is to get 4.4% that is paid annually.

Am I correct to understand that the second option is better since the first one would mean I get all the interest at once and, although compounded, get taxed and the second pays just under the allowance so I get to keep it all tax-free?

It's still taxable income and forms part of your adjusted net income.

So even if £500 is taxed at 0% you can still have a larger tax liability, typically where HICBC or tapered Personal Allowance are involved.

Marcon

To add to the above helpful answer, this might make useful reading: https://www.gov.uk/apply-tax-free-interest-on-savings

sgog

Dazed_and_C0nfused said:

sgog said:

Suppose that I have £10,000 I'd like to put into a 5-year fixed term savings account and I have a £500/y savings allowance.

One option is to get 4.5% when it matures, and another is to get 4.4% that is paid annually.

Am I correct to understand that the second option is better since the first one would mean I get all the interest at once and, although compounded, get taxed and the second pays just under the allowance so I get to keep it all tax-free?

It's still taxable income and forms part of your adjusted net income.

So even if £500 is taxed at 0% you can still have a larger tax liability, typically where HICBC or tapered Personal Allowance are involved.

I am dazed and confused now  .
What should I check to figure out which option would net more? (assuming I make £50-100k, and no kids, if that helps.)

p00hsticks

I'm going to request that this post is moved over to the Savings and Investments board, which is a better place for it