How to calculate interest

CaptainWales

Hi 

I am looking to invest a lumpsum in a 2 year account which pays 6.2% per annum but struggling to work out whether being paid the interest annually, monthly, or at maturity is better after tax. Is there an online tool or an easy way I can work this out?  Thanks.

Bigwheels1111

Monthly will count for next year, the year after and a third year.
Annually would count in 2024 and 2025.
At maturity you would be hit with a double whack.
Two things matter, how much you a putting in the account and your income.
Do you earn less than £18,570 or more.

working out tax is easy for me, but without the 2 facts above it hard to give good advice.

Who is the 6.2% fixed account with.
I can’t see any accounts with that rate.

CaptainWales

Higher rate tax payer, looking to put away around £33k. I *think* taking interest monthly works out slightly better?

The account isnt available now but im still within deposit window. 

Bigwheels1111

CaptainWales said:

Higher rate tax payer, looking to put away around £33k. I *think* taking interest monthly works out slightly better?

The account isnt available now but im still within deposit window. 

That makes sense, around 2k a year.

What about an isa.

Virgin 1 year 5.71%, plus you could move it within 14 day cooling off period.

Virgin to virgin ida switch takes 2 minutes.

I switched between 5.2% to 5.5% and 5.55%.

Today is the last day i can switch, but they have removed all isa's except the 1 year.

So Im staying put.

CaptainWales

Thanks. Maxed out my isa and most other tax free options unfortunately (although i know im in a really fortunate position to be able to say that)

CaptainWales

Is there an online tool to do such calculations?

EthicsGradient

CaptainWales said:

Is there an online tool to do such calculations?

Unlikely - it's too much a question of working out your individual situation, and the time of tax year you invest. In principle, the monthly option should work better, since it uses 3 tax years.

Have you considered holding low interest gilts to maturity? If you're already a user of a trading platform that offers them (eg ii), they can work out well, since most of the return comes from a capital gain, which is tax free for gilts. Gilt Yields (yieldgimp.com) lists some; eg TN25 (matures 31/1/25) pays the equivalent of 4.84% for a higher rate payer, while your 2 year 6.2% would work out at about 4.3% in the 24-25 tax year (and that's if you have no other savings accounts outside ISAs at all).

There are a few threads about gilts from recent days here.

Or: will you be using your 24-25 ISA allowance for something else, or will it be available? If available, you might be better off putting £20k in a notice account now, and withdrawing that in April 2024 to put into a cash ISA (if you withdraw it all just before April 5th, and fund a cash ISA just after April 6th, you wouldn't even have to look for a monthly-interest notice account - it'd give you the interest in the 23-24 tax year).