Isa or Fixed rate saving??

mikeparr1978

Any help appreciated, I m a bit confused around the taxation. I m a normal rate tax payer. I have 40’000 to either put in an isa or fixed 12 month saving. The fixed saving has a better interest rate of 6% compared to 5.5 on the isa. However will I pay more tax on the fixed rate?? Many thanks 

Zopa_Trooper

You multiply the 5.5% by 1.25 which gives you 6.78% so the ISA is better. However you can only put £20,000 in that.

Sg28

20k in the isa 20k in the fixed saver. 

You'll pay £40 in tax in the year on the fixed saver but no way around that unless you want to take a gamble with premium bonds, but you'll need to be very very lucky to beat the interest on the fixed saver even after tax. 

badger09

mikeparr1978 said:

Any help appreciated, I m a bit confused around the taxation. I m a normal rate tax payer. I have 40’000 to either put in an isa or fixed 12 month saving. The fixed saving has a better interest rate of 6% compared to 5.5 on the isa. However will I pay more tax on the fixed rate?? Many thanks 

£40k @ 6% will generate £2400 in the year. Assuming you have no other savings interest, the tax due on that will be (£2400 - £1000 = £1400 @ 20% £280 so £2120 net
You can only put £20k in an ISA each tax year. £20k @ 5.5% = £1100. 

If you put the other £20k in the FR @ 6%, interest will be £1200 less tax due (£200 @ 20%) £40 = £1160. So £2260 total. 

Seems like your best option. 
Hope my maths hasn’t let me down. Some 🍷 🍷 has been consumed😊

MikeJXE

mikeparr1978 said:

Any help appreciated, I m a bit confused around the taxation. I m a normal rate tax payer. I have 40’000 to either put in an isa or fixed 12 month saving. The fixed saving has a better interest rate of 6% compared to 5.5 on the isa. However will I pay more tax on the fixed rate?? Many thanks 

That depends what you mean by a normal rate tax payer, I class myself as one of them but I only pay tax on a small portion of my income

I'm investing in savings too but not yet in an isa because I won't be taxed on my fixed savings interest