Not always a good idea to opt for monthly interest to decrease tax at 22% next April 2027?

Yorkshire_Pud

So my ns&i bond is maturing soon and I can reinvest at 4.82% or 4.72% monthly. If I opt for the monthly version I decrease my liability to the 22% rate by effectively getting the first seven months at 20% tax on the interest. The catch being as the interest is paid away monthly I still want to invest it and my best option at the moment is the saga easy access at 4.5% variable.

My own back of an envelope calculation is that the loss of 0.32% interest will cost me five times more than the 2% saving in income tax.

Am I missing something glaringly obvious here or in this instance as long as I don’t need the interest monthly, I’m going to be better off putting the initial deposit in the one year annual interest bond?

flaneurs_lobster

That calculation agrees with my fag packet.

How much interest is being generated each month?

You could put it into a cahoot Sunny Day Saver at 5% (max £3k), not sure if that makes the monthly option more lucrative?

EthicsGradient

By my calculation, you'd be better off using the monthly option. On an initial £10,000, I think you'd get £379,70 interest from the monthly version, paying the interest into the also-monthly Saga 4.5% (4.41% "gross") account, and £375.96 from the anniversary version.

UKTaxHelper

Before optimising the rate, check whether it's taxable at all. If your total interest fits inside the personal savings allowance the 20 versus 22 comparison never arises. If it doesnt, the thing to watch is the whole lot landing in one year and tipping you into the higher band, where that allowance halves.

EthicsGradient

https://forums.moneysavingexpert.com/discussion/comment/82111362#Comment_82111362

Good point about the SDS. You'd be even better off if you can find a higher rate from a regular saver - Monmouth BS's is open to new customers and pays 6%.

masonic

The SDS has the advantage that you can opt for annual interest and will probably be able renew it just before the end of the tax year to get any accrued interest paid within this tax year. For accounts where early closure or renewing are not possible (such as a fix) then it may well not make financial sense to opt for a lower rate in order to pay away, but interest paid away stands a good chance of finding an account paying at least as high a rate given interest rate expectations.

flaneurs_lobster

https://forums.moneysavingexpert.com/discussion/comment/82111391#Comment_82111391

Indeed, hence my question about how much interest is being generated each month. If it doesn't exceed an RSs monthly limit (or the combined limits of more than one) then that's ideal.

Yorkshire_Pud

https://forums.moneysavingexpert.com/discussion/comment/82111362#Comment_82111362

Oh yes , I’d forgotten about regular savers. If Monmouth is 6% on up to £500 pm I’m well within that so actually increase my interest earnt by taking the monthly option. Only fly in the ointment being I could fund Monmouth from my saga account anyway so that’s puts me back in the quandary and having to open the Monmouth too! Kind of neat way of thinking about it though, and could top it up from saga easy access perhaps.