Scared of exceeding PSA

zagfles

subjecttocontract said:

No, you're right, perhaps I don't get it.
If you 'account' for it, does it help ?
If it helps, how ?

Example earlier in the thread.

Scenario A: inflation 0%, interest 0%

Scenario B: inflation 10%, interest 10%

Do you react differently in scenario A to B? Do you feel richer in scenario B? Do you spend more money? (real terms for the pedants).

If you react differently in the two scenarios, you're not accounting for inflation. From what some people have posted here, they do react differently. The two scenarios are the same. Real terms wealth is staying the same. Real terms spending shouldn't change. If you're loath to spend capital in scenario A, you should be equally loath to spend interest in scenario B.

Geddit? If not, tough. I'm through before someone tells us to get a room, have you seen the price of them

subjecttocontract

Yes I think everyone else has given up trying to understand.....I'm gonna join them.

mebu60

subjecttocontract said:

Yes I think everyone else has given up trying to understand.....I'm gonna join them.

I think many of us understand. It's just that it's not an obsessive priority for most, more of a conscious indifference for various individual perfectly valid reasons. 

RG2015

The majority of savers paying income tax at the basic rate will be able to use the PSA of £1,000.

However, what has changed significantly is the number of people now exceeding £1,000 in annual interest.

2% inflation and 2% AER used to be neutral for a large number of savers,

Now 6% inflation and 6% AER may not be neutral. Part of the income has effectively been reduced to 4.8% by the income tax liability of 20%, so no longer neutral.

And the final concern is the the current annual rate of inflation is the previous 12 months. What is more important is annual inflation for the next 12 months (and beyond).

This is just my current thinking but I can see how it will raise concerns for many. The bottom line for me is to maximise my net savings income both for easy access and access over the next year. I also choose not to lock in for more than 12 months because of the uncertainty both for inflation and for savings rates.

MeteredOut

An interesting graph would be the delta between the best easy access savings rate and the inflation rate at the same date. eg, if when interest rates were 1%, if inflation was 4%, then its not really any different from interest rates being 5% and inflation being 8%.

So, perhaps things have not changed that much in relative terms?

eskbanker

MeteredOut said:

An interesting graph would be the delta between the best easy access savings rate and the inflation rate at the same date

https://www.swanlowpark.co.uk/savings-interest-annual attempts to show this, but only on a long-term annual basis (up to 2021)....

zagfles

MeteredOut said:

An interesting graph would be the delta between the best easy access savings rate and the inflation rate at the same date. eg, if when interest rates were 1%, if inflation was 4%, then its not really any different from interest rates being 5% and inflation being 8%.

So, perhaps things have not changed that much in relative terms?

There's one here, second graph, though I think they're using the base rate rather than easy access savings rate, so it's probably a bit worse than the graph:

 https://www.investcentre.co.uk/articles/why-real-interest-rates-really-matter

SaveTheEuro

If you use pension contributions to keep your effective income below the higher rate threshold, do you qualify for a Personal Savings Allowance of £500 or £1,000? I'm assuming it is £500 because although you wouldn't be paying 40% tax on any of your income you would be enjoying 40% tax relief on your pension contributions. Is that right?

friolento

SaveTheEuro said:

If you use pension contributions to keep your effective income below the higher rate threshold, do you qualify for a Personal Savings Allowance of £500 or £1,000? I'm assuming it is £500 because although you wouldn't be paying 40% tax on any of your income you would be enjoying 40% tax relief on your pension contributions. Is that right?

I doubt HMRC would let you off the HR rate on savings but give you the HR rate for your pension contribution. In any given tax year, you are either a HR payer or you are not.

zagfles

SaveTheEuro said:

If you use pension contributions to keep your effective income below the higher rate threshold, do you qualify for a Personal Savings Allowance of £500 or £1,000? I'm assuming it is £500 because although you wouldn't be paying 40% tax on any of your income you would be enjoying 40% tax relief on your pension contributions. Is that right?

No. If pension contributions take you out of the 40% tax band then you have a £1000 PSA. But your income including all your interest will have to be in the basic rate band. Interest covered by the PSA still uses up the basic rate tax band.

For instance if you had £60k salary and contributed £10500 gross to a pension, your earned taxable income would be £49500, but if you had £1k of interest that would put you in higher rate tax band so you'd only get a £500 PSA.