Flexi ISA vs savings

20122013

Currently my Flexi cash ISA  (£1000) pays 3.9% and a savings account  pays 5%  

I am a basic tax payer, would it be better to move the Flexi ISA to the 5% savings account ?

Is one of the ways to work it out:

5 % - 3.9 % = 1.1%

1.1% x £1000 Flexi ISA  = Interest earned 

Interest earned - (Interest earned x 20% tax)

then choose the account that earns the highest interest ?

Eco_Miser

I can't follow your workings. My method is:

Savings account pays 5% x 80% = 4% after tax.

4% is (marginally) better than 3.9% 

0.1% of £1000 is £1. 

I wouldn't bother. For £20000 capital (£20 extra interest) I might.

surreysaver

I multiply a taxable savings account by 0.8 to obtain an after tax figure.  Also bear in mind if PAYE, you have the interest gross to be able to compound it for a while until you actually pay the tax on it.

For comparison purposes, I multiply an ISA's interest rate by 1.25 to see what I need to earn in a taxable account to beat the ISA

clairec666

surreysaver said:

For comparison purposes, I multiply an ISA's interest rate by 1.25 to see what I need to earn in a taxable account to beat the ISA

Yes, that's what I do. (If anyone's wondering why, it's the inverse of multiplying by 0.8)
A couple of other things to bear in mind:
You can earn up to £1000 interest (or possibly higher, depending on your earnings) without paying tax on it. So if you're below that figure, then 5% beats your 3.9% ISA hands down, because you'll keep all of the 5%.
However if you do reach the threshold for paying tax on interest, the banks will report your interest to HMRC and you will probably pay the tax owed by a change to your tax code. It might be a bit of a headache checking that everything has been calculated correctly and you're not under- or over-paying tax. For a gain of only a few pounds in interest, you may decide that the hassle of checking your tax code might outweigh the benefits.

Ch1ll1Phlakes

clairec666 said:

surreysaver said:

For comparison purposes, I multiply an ISA's interest rate by 1.25 to see what I need to earn in a taxable account to beat the ISA

Yes, that's what I do. (If anyone's wondering why, it's the inverse of multiplying by 0.8)
A couple of other things to bear in mind:
You can earn up to £1000 interest (or possibly higher, depending on your earnings) without paying tax on it. So if you're below that figure, then 5% beats your 3.9% ISA hands down, because you'll keep all of the 5%.
However if you do reach the threshold for paying tax on interest, the banks will report your interest to HMRC and you will probably pay the tax owed by a change to your tax code. It might be a bit of a headache checking that everything has been calculated correctly and you're not under- or over-paying tax. For a gain of only a few pounds in interest, you may decide that the hassle of checking your tax code might outweigh the benefits.

The bit in bold is key if the £1000 is most or all of your savings. Even at 5% you would need £20,000 in savings to have more than £1,000 in interest. If you have this or more then the above calculations would need to be considered.