Annual vs. upon maturity interest payments at a fixed term savings account

edited 23 January at 10:56AM in Savings & investments
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sgogsgog Forumite
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edited 23 January at 10:56AM in Savings & investments
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?


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  • Dazed_and_C0nfusedDazed_and_C0nfused Forumite
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    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.
  • MarconMarcon Forumite
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    To add to the above helpful answer, this might make useful reading: https://www.gov.uk/apply-tax-free-interest-on-savings
    Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!  
  • sgogsgog Forumite
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    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.)

  • p00hsticksp00hsticks Forumite
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    I'm going to request that this post is moved over to the Savings and Investments board, which is a better place for it
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