Tax on compound interest savings

stewart-page

Hi there, apologies in advance if there is an obvious answer for my question.
Me and my wife currently have a mortgage (27 years left, 7 years left on a 1.99% interest product)

We have been putting all our over payments into savings since we managed to lock into a mortgage with a lower rate of interest than saving accounts.

At the moment we save our overpayments into several different accounts due to them having max amounts you can pay into monthly. 

Monthly we save
£300 into First Direct 7% R Saver
£250 into Virgin 10% Saver
£200 into my Nationwide 8% Saver
£200 into wife's Nationwide 8% Saver

We have a lumpsum of..
£5250 in Money ISA 5.21% annually
£12,000 in Chase Saver currently 4.85% daily interest (compound interest paid monthly)

My question is should we just save annually as we are into the various accounts and end of year put the money saved and interest into the Moneybox ISA to avoid paying tax on our savings?
Or I'm wondering would it be financially better to pay everything into the Chase account so there is a much larger amount earning more compound interest?
I know we'd end up having to pay tax on savings that way but would we still be better off doing that way and ending up with Better interest returns even after paying annual tax on it? 

We are looking to keep saving for the remaining 7 years of the current mortgage product and then pay off a lumpsum of the mortgage, or continue saving depending on how mortgage rates differ to saving rates. 

Sorry for the essay and apologies if it's a silly question with a simple answer.

Many thanks
Stew

poppystar

Depends in part what your total savings interest is likely to be and also on whether you are basic or higher rate taxpayers. Are you likely to exceed your personal savings interest limit and have to pay tax on it each year? Using your ISA allowance is sensible if this is money you are unlikely to touch because even if you are not paying interest on savings interest now you could be later in this planned savings period and as the ISA allowance is yearly it is best to use these allowances each year. 

Dazed_and_C0nfused

My question is should we just save annually as we are into the various accounts and end of year put the money saved and interest into the Moneybox ISA to avoid paying tax on our savings?

You may have meant something else but doing that won't avoid tax.

The interest earned on a non ISA account will all be taxable, moving it into an ISA doesn't prevent that.

Interest earned within the ISA is exempt from tax.  Providing you don't break the ISA rules 🙃

stewart-page

Hi Dazed and Confused. Yep, we have the tax free lump sum in the Moneybox ISA at the moment and was planning to move saved money (once each bank had paid the annual interest) into the ISA, like you say to avoid it being taxed. But would there be an option for better returns by putting all of the monthly savings into our Chase account as we would receive compound interest. I know that interest would be taxable onve over £1000 but would the pros outweigh the cons? 
Im wondering if the compound interest this was may be more beneficial than spreading the money over various accounts even after any tax is paid.

stewart-page

Hi Poppystar. I'm a basic rate tax payer bud. I'll be abke to figure out the interest the fixed savings we have with Nationwide, Virgin and FD.
Chase would be a bit harder as it's calculated daily and paid monthly plus I'm not sure if I'll be paying it all into that one yet or leaving it as it currently stands

Money_Grabber13579

stewart-page said:

Hi Dazed and Confused. Yep, we have the tax free lump sum in the Moneybox ISA at the moment and was planning to move saved money (once each bank had paid the annual interest) into the ISA, like you say to avoid it being taxed. But would there be an option for better returns by putting all of the monthly savings into our Chase account as we would receive compound interest. I know that interest would be taxable onve over £1000 but would the pros outweigh the cons? 
Im wondering if the compound interest this was may be more beneficial than spreading the money over various accounts even after any tax is paid.

As has been said though, doing that won’t avoid it being taxed. The interest accrued whilst outside of the ISA will still be taxable. It’s only the interest that accrues once it is in the ISA which will not be taxable.

In my view, it all comes down to the rate on the particular accounts - is the rate on the ISA better than the rate on the non-ISA after taking into account tax?