Cash ISA or High rate current account or pay off Credit Card?

mockingbird_2

Hi all ,
I have a credit card balance of £4200 @ 5.95% APR for life.
I have just received my Alliance & Leicester premier account direct pack which offers 8.5% AER on balances up to £2,500 for the first year of opening.
I have just got a sum of £2000 in the form of back pay.
What should i do now?Should i open a mini cash ISA for the year 2008-2009 or put that money in the A&L account and don't touch it for the first year or pay off the credit card?I earn £25000 a year so what would be the tax percentage on the interest earned in the A&L account (20% or 40%)?

Thanks for the time.

Aegis

5.95% for life is basically going to be at or above most savings rates you can get. The difference between that and a good savings rate might not be worth bothering with when you can pay off straight away.

In the end it boils down to your call as to which is your highest priority. You could also consider doing Martin's Credit Card Shuffle to switch the debts on to 0% credit cards, making savings much more worthwhile.


Oh, and your tax rate for savings interest is 20% until you become a higher rate taxpayer, which is quite a long way off if you're sat at £25k p/a

debbie42

mockingbird wrote: »

I earn £25000 a year so what would be the tax percentage on the interest earned in the A&L account (20% or 40%)?

It should be the default 20%. Which equates to 6.8% after tax on 8.5% gross.
So, the difference between paying of £2000 on your credit card, or sticking it in your current account would be around £17 for a year.

mockingbird_2

To improve my knowledge how much should a person earn for the tax percentage on interest to become 40%?

wendy30

Hi Mockingbird

According to the Direct Gov website to pay tax at 40% your earnings should be £36,001, here's the link, hope it helps

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/DG_4015566

earlgrey_3

You'll pay 40% on earning and interest that's above £36,000 but after your personal allowance of £5,435. So 36000 + 5435 = £41435.

mockingbird_2

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnSavingsAndInvestments/DG_4015739
This is what the web site says.

• savings income that falls within the £2,230 starting rate Income Tax band is taxed at 10 per cent (though in most cases it's likely to fall above this limit, as it's added to your other income)
• savings income that falls above £2,230 starting rate Income Tax band but within the £34,600 basic rate Income Tax band is taxable at 20 per cent
• savings income that fall above the £34,600 Income Tax band is taxable at 40 per cent
• if it falls on both sides of a tax band, the relevant amounts are taxed at the rates for each tax band

All of the above figures apply to 2007-2008 year.
did this change for 2008-2009 or am i looking at some thing completely different?