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

portoman

Doctor_Who said:

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. 

And if it is paid monthly, then it should be paid into another account e.g. current account, rather than remaining in the fixed account until the end of the term, right (this is in relation to what TiVo_Lad said)

portoman

TiVo_Lad said:

. If it's locked away in the fixed account along with the principal, you'll get hit whennterest is released at th end of the fix, regardless of whether it's been paid monthly or annually.

But if I get paid monthly, if the interest accumulated was transferred out each month, then that would be lower than leaving it in , as nothing would accumulate and the money made by interest would be the same each month.

Doctor_Who

portoman said:

Doctor_Who said:

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. 

And if it is paid monthly, then it should be paid into another account e.g. current account, rather than remaining in the fixed account until the end of the term, right (this is in relation to what TiVo_Lad said)

Yes, hence my use of 'For a regular income'. If it is 'paid away' to a current account it is 'accessible' and therefore, in my example, £1200 is taxable interest each year and £1000 can be taxed @ 0% under the PSA, leaving £200 taxed @ 20%.

portoman

Doctor_Who said:

Yes, hence my use of 'For a regular income'. If it is 'paid away' to a current account it is 'accessible' and therefore, in my example, £1200 is taxable interest each year and £1000 can be taxed @ 0% under the PSA, leaving £200 taxed @ 20%.

 Okay, but if I use the money generated by interest for regular income i.e. it takes that out of the savings account, then that means that the money generated would be the same, as each month it starts from the same point, rather than accumulating, right?

Doctor_Who

portoman said:

Doctor_Who said:

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. 

 And any money generated by interest should be transferred out to a current account, right?

Not sure I understand. Monthly interest can be paid away to another account (make sure the fixed rate account has that option, some do and some don't), it can be a current account or an easy access account with the same provider or a different provider, again terms vary by provider, so check.

Doctor_Who

portoman said:

Doctor_Who said:

Yes, hence my use of 'For a regular income'. If it is 'paid away' to a current account it is 'accessible' and therefore, in my example, £1200 is taxable interest each year and £1000 can be taxed @ 0% under the PSA, leaving £200 taxed @ 20%.

 Okay, but if I use the money generated by interest for regular income i.e. it takes that out of the savings account, then that means that the money generated would be the same, as each month it starts from the same point, rather than accumulating, right?

Yes, the interest will not compound if it is paid away. Remember, if you don't need to spend the income you can save it and earn more interest, although that will be taxable.

Eco_Miser

portoman said:

TiVo_Lad said:

. If it's locked away in the fixed account along with the principal, you'll get hit whennterest is released at th end of the fix, regardless of whether it's been paid monthly or annually.

But if I get paid monthly, if the interest accumulated was transferred out each month, then that would be lower than leaving it in , as nothing would accumulate and the money made by interest would be the same each month.

That's almost right (it depends how many days in the month), for that account, but if you don't need the money being paid away, you can pay it into another account, possibly a Regular Saver, with an even higher rate of interest.

Vall1992

Interest tax can have an impact on income from deposits at a bank. Depending on your country's specific tax laws and the amount of income, you may face a tax liability on the interest earned.

If tax is levied on your income from fixed rate deposits, it makes sense to take the following factors into consideration:

Tax limits: Find out what tax limits apply to fixed-rate deposits. If your total interest income is less than that, then you may not have to pay tax on the interest.

Tax rate: Determine the rate of tax you pay on your interest. If the rate is low and your income from deposits is small, the tax impact may be negligible.

Bank terms: Pay attention to the terms of your fixed-rate accounts. Find out if they offer favourable interest rates and additional benefits. If you are on the lookout for high yields, a variety of accounts with different interest rates can be helpful.

You need to consider all these factors and do the calculations to determine whether it makes sense to have several 1-year fixed-rate accounts in light of the tax liability. It is advisable to consult a financial adviser or tax professional to get more precise information appropriate to your particular situation.