Given the tax on interest, is there any point having multiple 1 year fixed accounts?

portoman

I've got some money in an easy access savings account, but I already have other money in a 1 year fixed and a 2 year fixed, so is it worth putting the money in other 1 year fixed ones, if it means I may get penalised with the tax on interest? I know some accounts pay interest monthly, so would that negate the tax issue, if multiple accounts mature in the same tax year?

Catplan

Imo it’s better to get taxed on interest than not earn any.

so previously for the sake of argument you earned 500 in interest and paid zero take, now you earn 1200 in interest, pay tax you are still better off.

Albermarle

Interest is potentially taxable, regardless of what sort of account you have it in, and regardless if it is paid monthly.

If you say have £10K in an easy access account now, then any interest generated from that in this tax year 23/24, will be potentially be liable for tax in this tax year. If instead you put it in a one year fix, the interest would count in the next year. Of course you can play around so you hopefully just earn not quite enough interest in each tax year to actually pay any tax. However that depends on the sums involved. You could also look at sheltering some from tax in a Cash ISA.

portoman

Catplan said:

Imo it’s better to get taxed on interest than not earn any.

so previously for the sake of argument you earned 500 in interest and paid zero take, now you earn 1200 in interest, pay tax you are still better off.

So are you saying the tax thing isn't really an issue unless you've injecting £100,000s etc?

portoman

Albermarle said:

Interest is potentially taxable, regardless of what sort of account you have it in, and regardless if it is paid monthly.

If you say have £10K in an easy access account now, then any interest generated from that in this tax year 23/24, will be potentially be liable for tax in this tax year. If instead you put it in a one year fix, the interest would count in the next year. Of course you can play around so you hopefully just earn not quite enough interest in each tax year to actually pay any tax. However that depends on the sums involved. You could also look at sheltering some from tax in a Cash ISA.

Yes this what confuses me a bit - next year my 2 year fixed will mature and so will my 1 year fixed, so that could have potential tax issues, so maybe an ISA would be the best bet for the money I have in the easy access account. 

Also, regarding if I have interest paid monthly or yearly, am I right that if the interest is paid monthly then it would not be liable for tax unlike the annual interest? In my head, I think that's right but I'm not completely sure

masonic

portoman said:

Catplan said:

Imo it’s better to get taxed on interest than not earn any.

so previously for the sake of argument you earned 500 in interest and paid zero take, now you earn 1200 in interest, pay tax you are still better off.

So are you saying the tax thing isn't really an issue unless you've injecting £100,000s etc?

Imagine you have already exhausted all tax free allowances and have £1000 to save. Would you rather put it in a 5% savings account for a year and receive £50 then pay £10 more tax in the following tax year, or shove it under the mattress to avoid tax and receive nothing? Even someone with £100,000s is better off putting that money to work for themselves than hiding it away, though that may not be via savings accounts.

It makes sense to arrange your earnings so that they are as tax efficient as possible. With the exception of very limited and specific circumstances, it does not make sense to reduce your income in order to pay less tax.

Catplan

portoman said:

Catplan said:

Imo it’s better to get taxed on interest than not earn any.

so previously for the sake of argument you earned 500 in interest and paid zero take, now you earn 1200 in interest, pay tax you are still better off.

So are you saying the tax thing isn't really an issue unless you've injecting £100,000s etc?

Not quite. 

We can try and minimise the tax due by all means, but unless you’re right on the edge of the tax limits is not necessarily bad that you have to pay tax, 500 tax free or 1200 taxable for a basic rate tax payer?

Doctor_Who

portoman said:

Also, regarding if I have interest paid monthly or yearly, am I right that if the interest is paid monthly then it would not be liable for tax unlike the annual interest? In my head, I think that's right but I'm not completely sure

Interest is taxable income regardless of how often it is paid.

portoman

Doctor_Who said:

portoman said:

Also, regarding if I have interest paid monthly or yearly, am I right that if the interest is paid monthly then it would not be liable for tax unlike the annual interest? In my head, I think that's right but I'm not completely sure

Interest is taxable income regardless of how often it is paid.

So why do people often get it paid monthly rather than annually?

TiVo_Lad

Annual Interest means it lands all at once and you get taxed on the whole lot in that tax year. Monthly spreads it over 12 months, so potentially across two tax years. It might make the difference between getting taxed and not at all.

Remember for the fix, the interest has to be accessible. If it's locked away in the fixed account along with the principal, you'll get hit when the interest is released at th end of the fix, regardless of whether it's been paid monthly or annually.

Doctor_Who

portoman said:

Doctor_Who said:

portoman said:

Also, regarding if I have interest paid monthly or yearly, am I right that if the interest is paid monthly then it would not be liable for tax unlike the annual interest? In my head, I think that's right but I'm not completely sure

Interest is taxable income regardless of how often it is paid.

So why do people often get it paid monthly rather than annually?

For a regular income. From a tax point of view it might make better use of the personal savings allowance, e.g. a two year bond paying interest at maturity of £2400 would be taxable at £1000 @ 0% and £1400 @ 20% (assuming basic rate tax payer, no starting rate available), but if paid monthly then £1000 taxable @ 0% and £200 @ 20% each year. So £280 of tax vs £80 tax.