ISAs vs High Interest Savings Account

SusanGlasgow

I was wondering if anyone could offer some advice.   I have recently retired and would like to make interest on my savings with no risk.  I have been looking at this site and from what I can see the only benefit to an ISA is that there is no tax on the interest.  I don't pay tax on my pension so this isn't an issue.  I can see some bank accounts with similar interest rates guaranteed for a year, so my question is this: Is investing in an ISA preferable because the interest rate is guaranteed for the full term of the investment ie 5 years.  If I invest in the savings account, the interest could drop at the end of the 12 month period.  Or am I missing something obvious?  TIA

eskbanker

If your pension income is below £12,570 then you could earn up to £6K in savings interest without paying tax on it, so ISAs aren't likely to help in that scenario.

Fixed rate accounts are available both outside and within the ISA wrapper, so aren't a differentiator.

SusanGlasgow

I have around £100,000 to invest so would be over the £6k.  Sorry to sound to vague but I have inherited most of this money so am unsure of how to maximise the interest.

BoGoF

SusanGlasgow said:

I have around £100,000 to invest so would be over the £6k.  Sorry to sound to vague but I have inherited most of this money so am unsure of how to maximise the interest.

Where are you getting interest rates of over 6% to generate £6000 interest. You may be able to earn more than £6000 depending on the level of your pension.

Bigwheels1111

I see this as a very simple calculation.

How much are your savings and at what rate.

Personal allowance tax free £12,570

Total tax free eranings, pension or interest £12,570.

Then £5,000 of starter savings and £1,000 PSA.

Total £18,570

So if your pension is £10,000 you can earn £8,570 of interest tax free.

Now £200,000 of savings at 4.54%, 4.53% and 4.53% 3 accounts 80k, 80k 40k to stay within FSCS protection of 85k including interest.

Would give interest of,

            £3,632

            £3,624

            £1,812

Total    £9,680 interest.

That would mean you need to pay a little tax.

Use your own pension amount, plus savings amount and do the sums.

https://moneyfactscompare.co.uk/savings-accounts/5-year-fixed-rate-bonds/

ISA would pay quite a bit less. plus you can only put 20k a year into ISA.

https://moneyfactscompare.co.uk/isa/5-year-fixed-rate-isas/?quick-links-first=false

eskbanker

SusanGlasgow said:

I have around £100,000 to invest so would be over the £6k.  Sorry to sound to vague but I have inherited most of this money so am unsure of how to maximise the interest.

You'd do well to earn over 6% interest on £100K, but you can put up to £40K into ISAs (half by 5 April and half on or after 6 April) to mitigate any tax liability.  You may also have unused personal tax allowance, i.e. if your pension income is below £12,570 and your total income is below £18,570 then there's still no tax liability.

mebu60

£100k in savings accounts is unlikely to generate >£6k interest in a tax year. 

A straightforward initial approach that may work for you is to put £20k in an ISA by the end of this month then another £20k on or after 6 April, the first day of the new tax year. That will take £40k out of the tax equation ongoing.

The remaining c£60k can go into a savings account with a different institution. This is to ensure you don't exceed the FSCS protection limit of £85k. Bear the latter point in mind if you decide not to do the ISAs, you still need to split the £100k across two institutions holding separate licences. 

GrubbyGirl_2

You'd probably want to split that up between accounts anyway to keep it under the £85k FCSA protection.  As eskbanker said you can get fixed rates both inside and outside ISAs.  Personally I wouldn't lock the whole amount up for 5 years, as you never know if you may need money in an emergency.  I'd be tempted to split it up and put it into various length fixed term accounts and some into an easy access account.  Remember you can only put £20k a year into ISAs but if you're quick you can pay £20k into a 2023/24 ISA before 5th April and another £20k after April 6th.  Most fixed ISAs have a 30 day finding window.

Then look at a various different fixed and easy access accounts for the balance.

Albermarle

As said you can have one year fix rate, three year fix rate, five year fixed rate, easy access etc either as an ISA, or not.
The differences are only that ISA interest is not taxable, and you can not add more than £20K pa to one per tax year.

Current savings rates are around 4 to 5% so with £100K you would get maybe £5K interest per tax year.
If your pension is your only income, then you can earn interest of £18750 Minus your pension income, per tax year . So you probably do not need to use an ISA.

You may consider a mix of accounts.
Some easy access, so you can withdraw it quickly if necessary
Some fixed for one or two years.
Some fixed for three years or more etc 

friolento

Bigwheels1111 said:

Now £200,000 of savings at 4.54%, 4.53% and 4.53% 3 accounts 80k, 80k 40k to stay within FSCS protection of 85k including interest.

Would give interest of,

            £3,632

            £3,624

            £1,812

Total    £9,680 interest.

That would mean you need to pay a little tax.

Use your own pension amount, plus savings amount and do the sums.

https://moneyfactscompare.co.uk/savings-accounts/5-year-fixed-rate-bonds/

ISA would pay quite a bit less. plus you can only put 20k a year into ISA.

https://moneyfactscompare.co.uk/isa/5-year-fixed-rate-isas/?quick-links-first=false

There are many ISAs that pay more than 4.53% and 4.54%. https://moneyfactscompare.co.uk/isa/

By the 7th of April, OP could get £40k into ISAs. £20k now, and £20K after April 5.

Bigwheels1111

friolento said:

Bigwheels1111 said:

Now £200,000 of savings at 4.54%, 4.53% and 4.53% 3 accounts 80k, 80k 40k to stay within FSCS protection of 85k including interest.

Would give interest of,

            £3,632

            £3,624

            £1,812

Total    £9,680 interest.

That would mean you need to pay a little tax.

Use your own pension amount, plus savings amount and do the sums.

https://moneyfactscompare.co.uk/savings-accounts/5-year-fixed-rate-bonds/

ISA would pay quite a bit less. plus you can only put 20k a year into ISA.

https://moneyfactscompare.co.uk/isa/5-year-fixed-rate-isas/?quick-links-first=false

There are many ISAs that pay more than 4.53% and 4.54%. https://moneyfactscompare.co.uk/isa/

By the 7th of April, OP could get £40k into ISAs. £20k now, and £20K after April 5.

I know that, but 5 year term was mentioned.