How would you invest £40k with these options?

Casper7

Hi...

A basic rate tax payer, has £40k. Can lock away £20k for 1 year, if needed, not preferred though.

Investment options are:

1) NS&I 6.2%1 year fixed (£16k generates £1k before getting taxed)

2) Santander 5.08% AER/Gross (variable) easy access - monthly interest (£19k generates £1k before getting taxed)

3) Tesco Bank Instant Access Cash ISA 4.4% (rate drops to 1.25% after 12 months)

4) Chase Saving account 4.1%

My plan is:

• Invest £19k in Santander, benefiting from flexibility and not locking for a year. NS&I rate looks good but am I not achieving the same with Santander?

• Invest the rest in Tesco ISA for a year, then look for a better rate after 12 months.

Do you advise alternative plan or have any other tips?

Thank you.

Miser1964

I'd put £1k of the £40k into Premium Bonds and hope lady lucky comes your way.

Albermarle

Invest the rest in Tesco ISA for a year, then look for a better rate after 12 months.

Nobody knows for sure but probably one year fix rates in 12 months time will be lower than they are today. Fixing for longer is probably better.

Sg28

Put 20k in the ISA.

Then the rest in Santander which is actually 5.2% AER. Which will earn you £1032 per year after tax.

However if you do want to fix some 20k in the nsandi 6.2% will earn you £1160 per year after tax. 

No point considering chase. 

Bostonerimus1

Pay off all high interest debt like credit cards and then use NSand I and a high interest saving account inside an ISA. anything above 5% without risk should not be missed. Lock it in for as long as you can.

EthicsGradient

Has the tax payer received any interest already in this 23-24 tax year? That could affect how much could be put in something that pays monthly interest this year, before tax starts on it.

Casper7

EthicsGradient said:

Has the tax payer received any interest already in this 23-24 tax year? That could affect how much could be put in something that pays monthly interest this year, before tax starts on it.

No they have not. They are still near the 1k tax free interest.

EthicsGradient

In that case, you could consider this:
£20k in the NS&I Guaranteed Income Bond, which pays monthly. That's 6 months' interest (3.015%) in this tax year = £603, and the same in the next.
£15k in Santander - monthly, again, which is 2.54% this year = £381.
£5k in the Tesco Instant ISA.

This gets you about as much as you can this year from the highest interest account without tax, and from the other taxable one, but without going into the actual tax zone. If you leave the £15k at Santander, you'll hit the tax limit this time next year. You could put it in an ISA then, or, if there's other options that come along, you may want to do that earlier.

On edit: if the plan is to have the £40k in savings continually, it might be better to move the £15k into the Tesco ISA at the end of this tax year - that gets the better Santander rate for the year, but still uses this year's ISA allowance. Then, when the NS&I bond matures, you can either put it all in a new ISA, or a part of it there, and a part in an instant access account outside ISAs, to use the £397 or so you'd have left of the £1,000 allowance.

Casper7

EthicsGradient said:

In that case, you could consider this:
£20k in the NS&I Guaranteed Income Bond, which pays monthly. That's 6 months' interest (3.015%) in this tax year = £603, and the same in the next.
£15k in Santander - monthly, again, which is 2.54% this year = £381.
£5k in the Tesco Instant ISA.

This gets you about as much as you can this year from the highest interest account without tax, and from the other taxable one, but without going into the actual tax zone. If you leave the £15k at Santander, you'll hit the tax limit this time next year. You could put it in an ISA then, or, if there's other options that come along, you may want to do that earlier.

On edit: if the plan is to have the £40k in savings continually, it might be better to move the £15k into the Tesco ISA at the end of this tax year - that gets the better Santander rate for the year, but still uses this year's ISA allowance. Then, when the NS&I bond matures, you can either put it all in a new ISA, or a part of it there, and a part in an instant access account outside ISAs, to use the £397 or so you'd have left of the £1,000 allowance.

Many thanks for the clear and detailed plan