Tax on savings

edd78

I seen a rate of 5.6 for a 1 year fix at atom banking. and was looking to put in £20.000. as I'm a Scottish tax payer I pay 21% as my earnings put me I that bracket. and on the app it says the predicted intrest earned would be £1,123. Would a isa account be more suitable.

eskbanker

You have a £1,000 personal savings allowance so you'd only be liable to pay tax on £123 of that interest (and I think that's paid at the UK rate of 20% rather than the Scottish 21%), so you'd need to calculate total net interest (about £1.1K) and compare that with what you'd earn in an ISA.  The general principle should be to maximise net return rather than trying to avoid tax as such, so chances are that the taxable account will give a better net return here unless you find an ISA paying the same rate....

Doctor_Who

eskbanker said:

You have a £1,000 personal savings allowance so you'd only be liable to pay tax on £123 of that interest (and I think that's paid at the UK rate of 20% rather than the Scottish 21%), so you'd need to calculate total net interest (about £1.1K) and compare that with what you'd earn in an ISA.  The general principle should be to maximise net return rather than trying to avoid tax as such, so chances are that the taxable account will give a better net return here unless you find an ISA paying the same rate....

That's correct (from someone who has to deal with both Scottish income tax and savings interest)

edd78

Thank for that advice I'll work out what option is best. Especially fixed rate is at 5.6 % and isa is at 4.8%. If get more mpfor money by paying some tax compared to lower amount on a isa 

[Deleted User]

Hi,

you might want to wait a day or two to see new rates since BoE increase.

edd78

Hi thanks 

I'm planning waiting a couple of days so thanks for reply

boingy

You also need to consider how much you think you'll be adding to your savings in the next few years. If it's significant then getting some in a cash ISA this year would be sensible because it's tax free "forever". I've got one eye on the next general election where we'll most probably have a Labour govt who will need to earn some money and what better way to placate the suffering mortgage holders than to tax savers more so I wouldn't be surprised to see them messing with savings rules and thresholds.

There is another less obvious advantage to ISAs. You can always get your money out of a fixed rate cash ISA , usually by paying a significant interest penalty, but you usually cannot get your money out of a fixed rate savings account unless you die (!). One year fixes are mostly OK but imagine if, today, you were a couple of years into a five year fix with 20K earning 2% with nothing you can do about it. 

Bigwheels1111

boingy said:

You also need to consider how much you think you'll be adding to your savings in the next few years. If it's significant then getting some in a cash ISA this year would be sensible because it's tax free "forever". I've got one eye on the next general election where we'll most probably have a Labour govt who will need to earn some money and what better way to placate the suffering mortgage holders than to tax savers more so I wouldn't be surprised to see them messing with savings rules and thresholds.

There is another less obvious advantage to ISAs. You can always get your money out of a fixed rate cash ISA , usually by paying a significant interest penalty, but you usually cannot get your money out of a fixed rate savings account unless you die (!). One year fixes are mostly OK but imagine if, today, you were a couple of years into a five year fix with 20K earning 2% with nothing you can do about it. 

I’m thinking about the Virgin 5% 3 year isa for my emergency fund.
120 days of interest to close isa, on 10k that’s £164.38 fee.
Not a bad deal.

Ocelot

Bigwheels1111 said:

boingy said:

You also need to consider how much you think you'll be adding to your savings in the next few years. If it's significant then getting some in a cash ISA this year would be sensible because it's tax free "forever". I've got one eye on the next general election where we'll most probably have a Labour govt who will need to earn some money and what better way to placate the suffering mortgage holders than to tax savers more so I wouldn't be surprised to see them messing with savings rules and thresholds.

There is another less obvious advantage to ISAs. You can always get your money out of a fixed rate cash ISA , usually by paying a significant interest penalty, but you usually cannot get your money out of a fixed rate savings account unless you die (!). One year fixes are mostly OK but imagine if, today, you were a couple of years into a five year fix with 20K earning 2% with nothing you can do about it. 

I’m thinking about the Virgin 5% 3 year isa for my emergency fund.
120 days of interest to close isa, on 10k that’s £164.38 fee.
Not a bad deal.

Does anyone know if Virgin allow a transfer out from an ISA opened a year ago (with Virgin Money) into this account?

Albermarle

Is the ISA an easy access one, or one with a fixed term ?

Ocelot

One with a fixed term.