Savings advise please

spainboy1281

Hi. I've been left £40k from a relative's will and I want to put into an account locked for 1yr. Looking at what's on offer with isas etc I want to be looking at over 5% interest on that.
What's the best option for my money? Would getting an isa with my bank at 5.30% for the first £20k which is tax free and then put the other £20k into a 1 year savings account with an interest of 5%?? Is this a good idea or bad idea???

I've never had this amount of money in my life so want it tucked away for a year as we will be looking to put this on a deposit on a house in October 2024.
Plus how much am I expected to get in interest on £40k in a year after any tax

masonic

The best 1 year fix currently pays 6% and the best 1 year fixed ISA pays 5.78%, so settling for considerably lower rates might not be the best idea. If you are sure you won't need your house deposit sooner than October next year, then fixing for a year seems sensible. As for the interest and tax, that will depend on what rate you settle on, and what other income you have in the relevant tax year(s).

Ayr_Rage

1 year cash bonds are available at 6%

https://moneyfactscompare.co.uk/savings-accounts/1-year-fixed-rate-bonds/

1 year cash ISAa at 5.78%

https://moneyfactscompare.co.uk/isa/1-year-fixed-rate-isas/

ISAs are tax free, any other interest is paid tax free but you have a savings allowance that depends on the current rate of tax you pay on your earnings, so you may have to pay some tax on that interest.

If you need the money in October 2024 your plan looks sound to me.

TiVo_Lad

You mention "we", so you might also want to consider the implications (positive and negative) of a joint account which could allow you to split the interest (and hence the tax burden) making a higher-rate paying taxable account more beneficial than going for an ISA. HMRC details here:

https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2420

As has been stated, it will very much depend on your individual circumstances, other sources of income etc. so do the sums before making a decision.

BooJewels

spainboy1281 said:

[snip]
Plus how much am I expected to get in interest on £40k in a year after any tax

Just to give you the actual basic numbers - if you put £20k in an ISA at 5.78% as quoted above, you'd get £1,156 in interest and if you put the other £20k in a 1 year fix at 6%, you'd get £1,200 BEFORE any tax due, but we can't guess at how much that might be without knowing your situation.  

The bank ISA you quoted at 5.3% would earn £1,060 on your £20k - so you can see that it pays to shop around a bit.

eskbanker

spainboy1281 said:

I've never had this amount of money in my life so want it tucked away for a year as we will be looking to put this on a deposit on a house in October 2024.

If you're under 40 and this will be your first property purchase then you can pay £4K into a Lifetime ISA now (and again in April), on which you'd earn a 25% bonus. As with the comments above, if there are two of you, both in the same situation, then you could benefit from a total tax-free bonus of £4K from £16K, which would dwarf what you could earn in interest....

https://www.moneysavingexpert.com/savings/lifetime-isas/

jimjames

spainboy1281 said:

I've never had this amount of money in my life so want it tucked away for a year as we will be looking to put this on a deposit on a house in October 2024.
Plus how much am I expected to get in interest on £40k in a year after any tax

Just bear in mind that if you lock into a fixed rate for 1 year then you won't be able to access it (**) until that year is up. So if you find the perfect house in June next year you might not be able to go ahead. If that's possible then you might want to reconsider if fixing for 6% when you can get 5% instant access is a worthwhile. (**ISA rules are slightly different in that you can access with penalty but will then lose some of the interest you've earned)

Albermarle

jimjames said:

spainboy1281 said:

I've never had this amount of money in my life so want it tucked away for a year as we will be looking to put this on a deposit on a house in October 2024.
Plus how much am I expected to get in interest on £40k in a year after any tax

Just bear in mind that if you lock into a fixed rate for 1 year then you won't be able to access it (**) until that year is up. So if you find the perfect house in June next year you might not be able to go ahead. If that's possible then you might want to reconsider if fixing for 6% when you can get 5% instant access is a worthwhile. (**ISA rules are slightly different in that you can access with penalty but will then lose some of the interest you've earned)

There are a small number of non ISA fixed rate providers who will allow access, with a penalty. Mainly members of the LLoyds group + First Direct on their one year fix.

spainboy1281

One thing I forgot to ask. If I place £20k in an isa now and the other £18k into a one year fixed at 5.8% then will a proportion of the interest get paid in April next year or will I have to have it in the accounts for a full year to get interest? If I do have to have the money in a full year then will I get 12months interest plus the remaining 7 months of interest from this year?

eskbanker

spainboy1281 said:

One thing I forgot to ask. If I place £20k in an isa now and the other £18k into a one year fixed at 5.8% then will a proportion of the interest get paid in April next year or will I have to have it in the accounts for a full year to get interest? If I do have to have the money in a full year then will I get 12months interest plus the remaining 7 months of interest from this year?

Just like taxable accounts, ISA interest is paid according to the number of days for which the money is in the account, and will be paid at whatever date is specified in the product terms, or on closure if earlier (but there'd be a penalty charge to close a fixed term account before maturity).

Ayr_Rage

1 year fixes, either ISA or bonds, are just that, they last for 12 months from the day you invest and end on the anniversary, the product details will advise what happens if you do not reply to their message about the maturing product.

Bond interest paid monthly will fall into two different tax years if you invest now.

As ISA interest is tax free, it doesn't matter when you receive it.