Fixed Rate or ISA confusion

Bella79

Hi all 

We are currently saving £300pm (each) into a first direct saver at 7% Which is the max you can put in, we are 5 months into this.

But we still have roughly £45k sat in the our santander reg current account, Because savings rates have bee so low, I just left it in there, but now I am thinking its time to shift it out. 

This is ALL our savings, there is nothing else.

I have been reading on here about savings accounts/Personal allowance? etc and I am now a little confused. 

Should we just open x2 of the Natwest ISAS at 5.9% fixed for 2 year? and put £20k in each? that would then leave us £5k in our current account for easy access/emergency fund etc.

Or is there a better way to handle it?

We are in  low paid jobs, so prob won't be able to save huge amounts again (what we have was from a unexpected windfall) and the £600pm in the first direct will only be for the next 7 months, we will not be able to continue with that after this initial 12 month period. 

Advice greatly appreciated. 

Dazed_and_C0nfused

Depending on how low paid the jobs are then you could have a lot of interest all taxed at 0%.

But it might only be £1,000 each taxed at 0%.

Roughly how much will your P60 show your taxable earnings as?  And is that your only taxable income other than any interest?

Albermarle

Should we just open x2 of the Natwest ISAS at 5.9% fixed for 2 year? and put £20k in each?

Depending on your answer to the previous post. You might not need to save in ISA's at all and just use normal savings accounts, which usually pay a bit higher interest rates.

Perhaps more importantly you might like to stagger the fixed terms. So not both exactly two years.

Doctor_Who

Duplicate thread to one started on the ISAs board

https://forums.moneysavingexpert.com/discussion/6462687/isa-or-fixed-savings

My comment over there:

Do you need to use ISAs? You say you are in low paid jobs, if each of your incomes is below £17570 then you will have some of the starter savings rate (upto £5000 interest taxed @ 0%) available as well as the £1000 PSA. The reason I ask this is because non-ISA savings accounts typically pay higher rates than ISAs and any interest earned in non-ISA accounts may be completely covered by your starter savings rates (if applicable) and your £1000 PSAs.

See here for more details:

https://www.moneysavingexpert.com/savings/tax-free-savings/

Bella79

We both earn £24k per year, I looked on the savings board, but I thought 5.9% was quite good? I couldn't see any normal savings accounts that offered much more than this?

Doctor_Who

Bella79 said:

We both earn £24k per year, I looked on the savings board, but I thought 5.9% was quite good? I couldn't see any normal savings accounts that offered much more than this?

If you each earn £24K per year then the starter savings rate does not apply. You each have the PSA (£1000 of interest taxed @ 0%), above that interest is taxed at 20%. On £45K you would probably each pay some tax in non-ISA accounts. As pointed out on the ISA board, a fixed rate ISA will pay slightly less than a non-ISA but has the advantage that it can be accessed if needed (for a fee) and the interest is tax free.

Albermarle

Bella79 said:

We both earn £24k per year, I looked on the savings board, but I thought 5.9% was quite good? I couldn't see any normal savings accounts that offered much more than this?

Yes it is for a two year ISA.
The gap between ISA and non ISA savings rates varies over the years. Sometimes the gap is big enough that is worth having the non ISA account and paying tax. At the moment the gap is not that big.

However you should think ahead. In two years, rates may well have dropped and you might wish that you had fixed longer than 2 years for one of the £20K slugs.

cloud_dog

Bella79 said:

Hi all 

We are currently saving £300pm (each) into a first direct saver at 7% Which is the max you can put in, we are 5 months into this.

But we still have roughly £45k sat in the our santander reg current account, Because savings rates have bee so low, I just left it in there, but now I am thinking its time to shift it out. 

This is ALL our savings, there is nothing else.

I have been reading on here about savings accounts/Personal allowance? etc and I am now a little confused. 

Should we just open x2 of the Natwest ISAS at 5.9% fixed for 2 year? and put £20k in each? that would then leave us £5k in our current account for easy access/emergency fund etc.

Or is there a better way to handle it?

We are in  low paid jobs, so prob won't be able to save huge amounts again (what we have was from a unexpected windfall) and the £600pm in the first direct will only be for the next 7 months, we will not be able to continue with that after this initial 12 month period. 

Advice greatly appreciated. 

It may help you to think in terms of what plans you might have for the cash savings and the time scales for those plans.  That way you can think in terms of whether you want or can afford to lock the money away for a period of time, and therefore how long.

If you are unsure of plans and timescales then perhaps you could consider splitting an amount, perhaps £40k as you say across a number of fixed rate accounts (6 months, 12 months, 18 months, 2 years, etc).  Obviously if you know absolutely that you will not need most of this money within 2 years then a two year fixed rate would seem a fairly decent choice.

You also need to open easy access savings account, and however much isn't placed in to fixed rate accounts goes in there.  It would seem sensible that for all these accounts, including the easy access ones that you split the money between the pair of you so as to mitigate any administration issues, e.g. one providers IT system is down etc.

jimjames

Bella79 said:

We both earn £24k per year, I looked on the savings board, but I thought 5.9% was quite good? I couldn't see any normal savings accounts that offered much more than this?

It's good but it's also locked away for 2 years. Access would be possible but with an interest penalty. You might be better off having a shorter or longer term on one chunk of money. But if you don't actually need the money for anything planned then you might want to look at other options for it like S&S ISAs or pensions depending what other provision you have.

Bella79

Hi All

Thank you for all your replies and advice so far. 

I think the plan we have so far is:

£20k Natwest ISA 2 yer fixed 5.9%
1 year fixed ATOM 6.09% (one each £10k in each one)

Leave £7850 that I was going to put into a easy access, But I need to find one that doesn't give a penalty for withdrawing, or just leave it in santander (think I get 3.5%)

I also want to contribute to the easy access/santander, we have another £130ish a month spare that I want to save.

Its difficult to know, how much to leave for quick access! 

Does this sound okay?

Doctor_Who

Bella79 said:

Hi All

Thank you for all your replies and advice so far. 

I think the plan we have so far is:

£20k Natwest ISA 2 yer fixed 5.9%
1 year fixed ATOM 6.09% (one each £10k in each one)

Leave £7850 that I was going to put into a easy access, But I need to find one that doesn't give a penalty for withdrawing, or just leave it in santander (think I get 3.5%)

I also want to contribute to the easy access/santander, we have another £130ish a month spare that I want to save.

Its difficult to know, how much to leave for quick access! 

Does this sound okay?

There are lots of EA accounts to choose from, some have restrictions (i.e. only 2 or 4 withdrawals per year), but most don't. You can find a list of EA accounts here:

https://moneyfactscompare.co.uk/savings-accounts/easy-access-savings-accounts/?quick-links-first=false

It sounds a lot better than £45K sat in a current account!