Confused about interest rates

Seaxwyn

Hi everyone.

I am currently saving in an ISA that pays 5.3% (paid monthly). I also have an A&L current account, which is usually overdrawn but I think would pay 8.5% AER on accounts up to 2500 in credit. Would I be better off moving the money from the ISA to the current account?

Thanks

oldwiring

After tax @20% an AER of 8.5% comes down to about 6.8%, which is more than that offered by the ISA. IMO although it may seem a no brainer to go for the higher net interest of the A&L account, you need to consider that as well as being taxed the interest will affect your gross taxable earnings. Will that affect you in ways not connected with tax per se? You say that your CA is usually overdrawn, so another question you need ask is what debit interest rate is being applied and charges.

Seaxwyn

Thanks oldwiring. As I am nowhere near the threshold to pay higher rate tax I don't see it would be a problem to increase my taxable earnings.

I don't pay interest on the overdraft, but I pay a £5/month charge for being overdrawn.

It does seem a no brainer to pay off my overdraft with the savings from my ISA - are there any other things to consider?

YorkshireBoy

Seaxwyn wrote: »

I also have an A&L current account, which is usually overdrawn but I think would pay 8.5% AER on accounts up to 2500 in credit.

I noticed on another thread you said the account was around a year old. If that's the case your account will pay 6/6.5% AER, and shortly drop to 1% below the BOE rate.

AFAIK, the 8.5% is for 'brand new customers only', isn't it?

Seaxwyn

Aargh, how annoying. You're right, it is 1% below the BOE rate. Thanks for pointing that out! The website is a bit misleading there. Well I'm glad I asked before withdrawing the money from my ISA. Thanks.