Quick interest rate question

KWells1979_2

Hi

I want to put some savings away for a 6 month term. I am unsure as to whether an ISA or a Fixed Rate would be best due to the tax I will have to pay in the fixed rate account.

ISA - 5.89% (monthly interest)
Fixed Rate - 6.65% (monthly interest)

Obviously, the fixed rate has the higher interest but I will get charged taxed on top of that.

So, basically my question is.... after 6 months, which one would give me the best return.

Many Thanks for any help.

Kristian

Bonbon

I would think that the fixed rate has a penalty for making withdrawals (otherwise everyone would have one for a short time) and this could be up to 120 days interest. I think you should check out terms and conditions.

whu

A couple of things to consider:
Is the ISA a variable rate as if so the rate could go down during the period.
The tax you pay on the interest on the fixed rate will depend if you are a higher (40%) or lower rate tax payer(20%)

Baldur

KWells1979 wrote: »

So, basically my question is.... after 6 months, which one would give me the best return.

Kristian

Playing with the Savings Calculator should answer your interest rate query (note the 'No Tax' & Tax rate buttons).

Assuming no interest change on the ISA, it would earn you £2.77 more than the Fixed Rate per £1000 over 6 months.

KWells1979_2

Thanks for the replies. I am not able to withdraw from the fixed rate during the six months, and have no intention of doing so.

Good point on the variable rate ISA. I've just checked and it only states 0.30% above base rate until 2013. Just noticed that the rate is also 5.94% not 5.84 as first stated.

I have no idea whether I am a higher or lower tax rate payer. Is that based on yearly income. Sorry, I've never understood tax!

KWells1979_2

Many Thanks Baldur. That answered my question perfectly.

Turns out that the ISA is the best option due to not getting taxed. Will put the maximum allowed in there and then overflow the rest into the fixed for 6 months.

Many thanks, this forum is great!

whu

KWells1979 wrote: »

Thanks for the replies. I am not able to withdraw from the fixed rate during the six months, and have no intention of doing so.

Good point on the variable rate ISA. I've just checked and it only states 0.30% above base rate until 2013. Just noticed that the rate is also 5.94% not 5.84 as first stated.

I have no idea whether I am a higher or lower tax rate payer. Is that based on yearly income. Sorry, I've never understood tax!

Tax - is basically based on your income - if you are below the threshold you pay the lower rate and if above you pay the balance at the higher rate

KWells1979_2

Thanks whu, I'm quite sure i'm on the higher tax rate. I did the savings calculator using both tax options and the ISA still came out top (providing the rate stays the same)

Thanks