What Should I Be Careful Of? - 12 Month Savings Account for Income Tax Money

Genex

Hi, 

I'm self employed and I want to store my income tax money somewhere until the end of the year when I need to pay it so I'm looking at various savings accounts etc. 

Is there anything I need to watch out for? Any red flags, things to avoid etc? Obviously I need 100% of the money back at the end of the year, so I don't want to be speculating on investments etc.

I have bank accounts for cash flow as well as a stocks and shares ISA  so I want to keep this tax money completely separate, to the point that I don't even know it's there until I need it to pay tax so I don't dip into it.

Current account bank rates look horrendous. I see places like Hargreaves Lansdown have 5% savings accounts (fixed 3, 6,12 months) which sounds ideal, but I wanted to check in to see what you all think first

Thanks!

friolento

Don't you have to pay twice, by end of January and by end of July each year?

Genex

friolento said:

Don't you have to pay twice, by end of January and by end of July each year?

I haven't met the requirements, but might this year. I always just file and pay in full each May, so it makes sense to put the money somewhere that is beneficial to me in the meantime

EthicsGradient

If you want the maximum interest, then not paying until you have to (at the end of January and July) would make most sense. If you file by May, you should have plenty of time to know how much you'll need, in which case a notice account (eg 90 days) could be best - this allow you to add to it whenever you want. You'd need to remember to give the notice (for 90 days, before the end of October and April) as well as pay it. But setting up fixed term accounts to end at the required time is probably more hassle, and less flexible in terms of paying in.

Genex

EthicsGradient said:

 But setting up fixed term accounts to end at the required time is probably more hassle, and less flexible in terms of paying in.

Thanks. So I'm thinking that as there's no tax on the first £1,000 anyway it wouldn't be worth taking up the space on an ISA. So maybe something like these "active savings accounts" 
https://www.hl.co.uk/savings/latest-savings-rates-and-products

They seem to have decent rates, no lock in period and monthly interest payouts.... it's just there's a million options and picking the top rate sounds "too easy"

EthicsGradient

If you already have an HL account (eg your S&S ISA), that may be easiest to set up - they shouldn't need any identification. I haven't used them for an easy-access account, so I don't know how easy that is to fund and withdraw from, going via HL as an intermediary. The alternatives would be top-paying accounts in general, rather than only ones that HL deals with - see Best Easy Access Savings Accounts | Up To 5.20% (moneyfactscompare.co.uk) or Best savings accounts: 5.01% easy access or 5.26% fixed rates (moneysavingexpert.com) . These pay a bit more; the best with only a £1 minimum seems to be Cynergy at 4.95%. I've not had any problems with a Cynergy instant access account, but I must admit some posters here say they've never been able to get their authentication process working. Principality BS pays 5% with a minimum of £1, but only 2 withdrawals a year - OK for 2 tax bills, but not anything more. 

Genex

Thank you, I'll certainly have a read through those!
I don't have a HL account yet but I was looking at them for index funds and stocks recently

TheBanker

EthicsGradient said:

If you already have an HL account (eg your S&S ISA), that may be easiest to set up - they shouldn't need any identification. I haven't used them for an easy-access account, so I don't know how easy that is to fund and withdraw from, going via HL as an intermediary. The alternatives would be top-paying accounts in general, rather than only ones that HL deals with - see Best Easy Access Savings Accounts | Up To 5.20% (moneyfactscompare.co.uk) or Best savings accounts: 5.01% easy access or 5.26% fixed rates (moneysavingexpert.com) . These pay a bit more; the best with only a £1 minimum seems to be Cynergy at 4.95%. I've not had any problems with a Cynergy instant access account, but I must admit some posters here say they've never been able to get their authentication process working. Principality BS pays 5% with a minimum of £1, but only 2 withdrawals a year - OK for 2 tax bills, but not anything more. 

I have used HL Active Savings in the past. It's dead easy to open and fund new accounts, you can do it by debit card or from your bank account using Pay By Bank App (you select your bank, and log into your online/mobile banking where you can approve a pre-populated payment).

In my view HL win for ease - but I found their providers sometimes paid a slightly higher rate if you applied directly.

ColdIron

TheBanker said:

EthicsGradient said:

If you already have an HL account (eg your S&S ISA), that may be easiest to set up - they shouldn't need any identification. I haven't used them for an easy-access account, so I don't know how easy that is to fund and withdraw from, going via HL as an intermediary. The alternatives would be top-paying accounts in general, rather than only ones that HL deals with - see Best Easy Access Savings Accounts | Up To 5.20% (moneyfactscompare.co.uk) or Best savings accounts: 5.01% easy access or 5.26% fixed rates (moneysavingexpert.com) . These pay a bit more; the best with only a £1 minimum seems to be Cynergy at 4.95%. I've not had any problems with a Cynergy instant access account, but I must admit some posters here say they've never been able to get their authentication process working. Principality BS pays 5% with a minimum of £1, but only 2 withdrawals a year - OK for 2 tax bills, but not anything more. 

I have used HL Active Savings in the past. It's dead easy to open and fund new accounts, you can do it by debit card or from your bank account using Pay By Bank App (you select your bank, and log into your online/mobile banking where you can approve a pre-populated payment).

I hadn't spotted that, thanks

Genex

TheBanker said:

In my view HL win for ease - but I found their providers sometimes paid a slightly higher rate if you applied directly.

After spending all day looking, I've also found that. I've settled on a First Direct regular saver at 7% locked for a year, just awaiting "further checks"  

Bigwheels1111

Genex said:

TheBanker said:

In my view HL win for ease - but I found their providers sometimes paid a slightly higher rate if you applied directly.

After spending all day looking, I've also found that. I've settled on a First Direct regular saver at 7% locked for a year, just awaiting "further checks"  

You do understand that’s on only £300 a month.
Now you could stick the rest in a Chip 5.1% easy access isa.
Then fund FD each month from that to maximise interest.