Advice please

Mantovani

Dear all,

I'm looking for some best advice for a friend of mine please. In short, she has £40,000, saved over a period of years, sitting in a current account!  She has not said what the interest rate is but I expect it is low. What should she do to maximise interest payments and avoid paying any tax? I think her idea is to save up for a mortgage deposit, so investing is probably not the way to go, but perhaps a two or three-year savings fix. I am concerned that she should get sorted before the threatened interest rate drop. I know nobody has a crystal ball, but do forumites have any advice on a good course of action?

Cheers

David

Dazed_and_C0nfused

Why does she want to avoid paying tax 🤔.

Most people prefer the best net return not a lesser return just to avoid tax.

Is she earning (taxable) interest from any other accounts at the moment?

Do you think she earns (taxable wages, pension business profits ect) more than £17.5k?

Doctor_Who

Mantovani said:

Dear all,

I'm looking for some best advice for a friend of mine please. In short, she has £40,000, saved over a period of years, sitting in a current account!  She has not said what the interest rate is but I expect it is low. What should she do to maximise interest payments and avoid paying any tax? I think her idea is to save up for a mortgage deposit, so investing is probably not the way to go, but perhaps a two or three-year savings fix. I am concerned that she should get sorted before the threatened interest rate drop. I know nobody has a crystal ball, but do forumites have any advice on a good course of action?

Cheers

David

I don't think rates will be dropping anytime soon, if anything they are still going up.

Sounds like fixed rate cash ISAs (interest is tax free) or normal fixed rate accounts (interest is taxable). The choice will really depends on her total income and tax rate.

Have a look here for the best rates:

https://moneyfactscompare.co.uk/savings-accounts/

Albermarle

She will be a lot better off in a decent savings account and paying some tax than she is now !

Best savings accounts: 4.6% easy access or 6.1% fixed rates (moneysavingexpert.com)

Mantovani

Thank you for the replies. I did not mean she wants to avoid paying tax. She has no clue about money management. What I want to do is maximise her return. She earns between £35,000 and £40,000 pa. No other savings as far as I know.

Do you think it a good idea to split the 40k between a cash isa and a  high rate savings acc; fix for a length of time or not?

Cheers

David

grumbler

Mantovani said:

Do you think it a good idea to split the 40k between a cash isa and a  high rate savings acc;

This depends on her taxpayer status. Normal accounts pay higher interest, but it can be taxable -

What is the personal savings allowance?

fix for a length of time or not?

This depends on her plans and risk attitude. Long-term fixed rate accounts are more predictable, but normally you don't have access to the money even with a penalty.

dealyboy

I think the best advice is to introduce her to money saving and dare I say it moneysavingexpert.

There are lots of interesting and friendly articles for the beginner, she may just notice the opportunities she's missing out on.

Perhaps you can read them together.

Dazed_and_C0nfused

Mantovani said:

Thank you for the replies. I did not mean she wants to avoid paying tax. She has no clue about money management. What I want to do is maximise her return. She earns between £35,000 and £40,000 pa. No other savings as far as I know.

Do you think it a good idea to split the 40k between a cash isa and a  high rate savings acc; fix for a length of time or not?

Cheers

David

If that is her only taxable income then the first £1,000 of (non ISA) interest will be taxed at 0%.

So making the most of that with the higher interest rates available on non ISA accounts would be sensible and then using the best ISA will currently give a better net return than a non ISA account where 20% tax will be due.

6% net of tax is 4.8% and there have been several Cash ISA's paying more than that.

Beddie

As others have said - £20k in a cash ISA in case tax becomes an issue. And the rest in savings - fix for a year or 2 if they don't need access to it, otherwise an easy access account. All the best rates are on Moneyfacts.

https://moneyfactscompare.co.uk/

badger09

If your friend is under 40 and intends to buy a property in a few years, she should consider a LISA. Interest rates not as high as standard Cash ISA but she gets bonus from the government. 

Detail here

https://www.gov.uk/lifetime-isa

Mantovani

Thanks all for the really useful replies. The priority of course is to get that lump sum out of the current account!  It seems as if, a mixture of ISA, LISA (she is in her 20s) and high interest easy-access accounts is the way to go. I assume she can open a LISA with 4k and an ISA with16k and pay regular sums into them, as per the conditions laid down for these types of account. I assume the ISA will be closed to further payments in until April 2024 (?) I think perhaps a three-year fix for the ISA? I am not asking anyone to validate these proposals, just a nod that they are along the right lines. I will ask her about her savings goals tomorrow.

Many thanks.

David