Savings interest and avoiding tax

InvesterJones

jake_jones99 said:

I recommend you also look at money market funds. You can buy one in a stocks and shares ISA. It may seem risky at first if you never had a s&s isa but I can tell you the risk in a money market fund is virtually the same as in a cash isa. That's where i keep all my savings. The advantage is that the money market fund i use matches the BoE interest rate of 5.25% tax free. Also you can pull the money out when you want, and the fluctuations in the value of the fund are minimal, so it's very much similar to a savings account. I recommend you look at the Royal London short term fund:
https://www.ajbell.co.uk/market-research/FUND:B8XYYQ8

I use Aj Bell but you can use whatever platform you prefer, just check what platform fees they have and how much they charge you for holding funds. 
If you didn't interact with this before it may take a bit of time to understand it but trust me it's worthwhile. In my case I've had the tax free top rate for a few years. 
Of course, if the BoE rate drops so will the rate of this fund. So if you want to lock your money for a longer time you might get a better rate in a cash ISA.

Royal London Short Term Money Market does not match the BoE interest rate. Their benchmark is SONIA, which is currently 5.19%, and then you need to consider platform charges as well. It is not similar to a savings account, it is an investment with no guarantee they will meet their benchmark. As investments go, short term money market funds are at the less risky side definitely, but they are absolutely not the same as cash savings, which come with additional protections.

jimjames

Spivo46 said:

masonic said:

Spivo46 said:

Dazed_and_C0nfused said:

Spivo46 said:

I have 20k in a standard savings account which pays good interest. Once i get close to earning £1k interest is it ok to then switch to a Cash ISA to avoid paying tax?

Is £1k even relevant 🤔

What about your Personal Allowance, has that been used?

And any available savings starter rate band?

But if they aren't a factor and you want to avoid paying tax then a Cash ISA is an option.

Sorry, i didn't make that very clear. I am a basic rate tax payer. I have another £20k to add to the existing £20k. I am trying to achieve the best rates, these seem to be standard saving accounts. So, can i let the interest accumulate to a point close to £1k interest then pull it out before i hit that limit and transfer it to an ISA to avoid the interest being charged?

You are allowed to do that, but it's pretty close to the end of the tax year already. If you haven't gone over already, then it doesn't seem like there is much benefit to be had.

The best rates tend to be earned on fixed term accounts, and with those you do not have the luxury of accessing the money when you want. But the net rate is probably better than you'd achieve by your suggested approach.

Agreed, but i am now thinking about 24/25 and the £40k. I will probaly but 20k in the ISA and leave the rest in the standard savings at 4.25% 

You can get more than 4.25% in an ISA tax free. If you have £40k then putting £20k in now and £20k in after April will protect the whole lot from tax on the interest

poseidon1

InvesterJones said:

jake_jones99 said:

I recommend you also look at money market funds. You can buy one in a stocks and shares ISA. It may seem risky at first if you never had a s&s isa but I can tell you the risk in a money market fund is virtually the same as in a cash isa. That's where i keep all my savings. The advantage is that the money market fund i use matches the BoE interest rate of 5.25% tax free. Also you can pull the money out when you want, and the fluctuations in the value of the fund are minimal, so it's very much similar to a savings account. I recommend you look at the Royal London short term fund:
https://www.ajbell.co.uk/market-research/FUND:B8XYYQ8

I use Aj Bell but you can use whatever platform you prefer, just check what platform fees they have and how much they charge you for holding funds. 
If you didn't interact with this before it may take a bit of time to understand it but trust me it's worthwhile. In my case I've had the tax free top rate for a few years. 
Of course, if the BoE rate drops so will the rate of this fund. So if you want to lock your money for a longer time you might get a better rate in a cash ISA.

Royal London Short Term Money Market does not match the BoE interest rate. Their benchmark is SONIA, which is currently 5.19%, and then you need to consider platform charges as well. It is not similar to a savings account, it is an investment with no guarantee they will meet their benchmark. As investments go, short term money market funds are at the less risky side definitely, but they are absolutely not the same as cash savings, which come with additional protections.

I can certainly confirm money market funds are volatile and not the same as cash ( albeit low volatility).

I have three such funds in my Sipp. All are income units and invested on 15 January 2024.
As of today Fidelity Cash fund ( pays monthly) shows 0.07% gain on purchase. By contrast Legal and General cash trust and Premier Miton UK Money Market ( both pay quarterly), are showing losses of 0.81% and 0.86%. Theses percentages oscillate up and down daily.

All three have different approaches to their 'cash' mandates in terms of portfolio composition  whilst L & G holds 95% of assets in actual cash, Fidelity holds just 0.73% in cash ( or its equivalent) with the balance in corporate bonds, building society pibs, international short dated bonds etc. Premier Miton just under 10% in cash and an emphasis on international short dated bonds.

As can be seen, all three purport to be 'cash' funds but only L & G appears to accurately align with that description.

Royal London short term money mentioned by InvestorJones comprises around 10% cash with the remaining in short dated instruments such as  UK Treasury bills , international bank certificates of deposit and floating rate notes. 

All quite different approaches in achieving a low risk 'cash' return to investors, and arguably require a certain level of investor knowledge and sophistication ( L & G apart ), to fully understand how the 'cash' return is actually being generated.

However, as far as ISAs are concerned, where I require a cash return I have been chopping and changing between different fixed and easy access cash isas from various banks for as long as bank interest rates remain relatively attractive.

eskbanker

The important difference between short term money market funds and others was discussed in this recent thread:

https://forums.moneysavingexpert.com/discussion/6504842/is-there-any-meaningful-difference-between-mmfs

elkiedee

There are also some quite good rates on offer on accounts which offer limited access, both ISA and non ISA, but still good rates, eg up to 3 withdrawals in 12 months. 

Spivo46

I don't want to invest in stocks or anything else. I am doing that with my Pension fund. This is savings to cover me during any market downturn.

poseidon1

eskbanker said:

The important difference between short term money market funds and others was discussed in this recent thread:

https://forums.moneysavingexpert.com/discussion/6504842/is-there-any-meaningful-difference-between-mmfs

Thanks for the reference to the video on this. Useful for people like ourselves, but I appreciate from the OP's point of view my mutterings on money market funds and their complexities were way of his specific brief. My apologies for this!