Why not put it all in to Northern Rock?

Claremac

We are completing on our house :j :j :j in 2 weeks’ time and moving in to rented, not through choice, but because we haven’t found anywhere to buy. As we have a lot of equity in the house we have about £240,000 to put into savings while we wait to buy. I am a non-taxpayer and my husband is a 40% payer so the savings will all be in my name.

We had intended to put the maximum in a Cash ISA each and then split the rest in £35,000 chunks in the best accounts we could find (prefer not to use foreign banks though). After some help from a member on here (thank you :T ) and reading Martin’s Safe Savings article, I now realise that I could put it all in to Northern Rock’s Tracker Online at 6% and the government would guarantee 100% of it. Martin talks about putting “a portion” in rather than all but, if I don’t want to use a foreign bank, I’m beginning to think that it is my best bet. I am aware that it includes a 1-year introductory bonus of 1.24% so I may have to look again next year.

Can anyone tell me whether or not this is a good plan? Thanks.

Clare

InMyDreams

Claremac wrote: »

As we have a lot of equity in the house we have about £240,000 to put into savings while we wait to buy. I am a non-taxpayer and my husband is a 40% payer so the savings will all be in my name.

Congratulations! :beer: But you do realise that once you have this much un-sheltered savings in your own name you will no longer be a non-tax-payer. The interest alone will be way over your allowance. You will not therefore be entitled to complete the R85 and you will have to claim back the bit of tax you are owed at the end of the tax year.

As for your other questions, I'm sure others will have a better idea than me.

earlgrey_3

Claremac wrote: »

Can anyone tell me whether or not this is a good plan? Thanks
Clare

Sounds good to me, I put £100K into their 6.45% fixed rate last month. Your money is 100% safe but at 6% you're paying quite a bit for the convenience of having it all in one place.

Would definitely put the maximum allowance for you both into a tax-free cash ISA regardless and you'll need to do your own sums on whether the slightly less than maximum return you'll get is worth it for the convenience. Depends on how flush you feel.

merlinthehappypig

earlgrey wrote: »

Sounds good to me, I put £100K into their 6.45% fixed rate last month. Your money is 100% safe but at 6% you're paying quite a bit for the convenience of having it all in one place.

Would definitely put the maximum allowance for you both into a tax-free cash ISA regardless and you'll need to do your own sums on whether the slightly less than maximum return you'll get is worth it for the convenience. Depends on how flush you feel.

I agree that there would be a small loss of interest compared with spreading it around a number of accounts, but the OP would have to open 8 accounts with separate institutions to fully guarantee her capital and interest.

Bearing in mind that some institutions aren't covered seperately by the FSA guarantee she would be hard pressed to get an average of much more than 6.15% or so in instant access, no penalty, accounts at present.

That 0.15% would be a loss of just under £300 in a full year.

Personally I would be willing to lose that for the convenience of having the money all in one place. We did have our money spread around until the NR guarantee came in, but it was a bit of a pain checking the rates all the time and we lost interest each time we had to move any money.

Claremac

Grrr - second time this week I have been unable to get onto the forum when I've asked a question!!!

Anyway, thanks very much to all of you for the replies. Inmydreams, I had realised that I would have to pay tax after a few months. Would it be best to wait until I reach the level where I need to pay tax and then declare it or just claim it all back at the end of the tax year? Earlgrey, I have been puzzling over whether it is worthwhile sacrificing a bit of interest for the ease of not having to control so many separate accounts. Looking at Martin's guide to the best savings accounts, I think that Merlinthehappypig (great nameBTW!) is right in saying that I would probably not get much better than 6.15% so I'll have to decide whether I'm going for every last penny or whether ease of use is best.

One further question if I may. If I do go for the NR Tracker Online (which is looking likely) I have choice of annual or monthly interest. I will need to use some (all?) of the interest to fund the rent, so could anyone explain how the annual/monthly interest works and what would be my best bet.

Thanks again for all the help.
Clare

Lokolo

Monthly AER = 5.9%
Yearly AER = 6%

Basically if you leave your money in for a year, if interest is paid monthly you will end up with 5.9%, if you leave it in for yearly interest you will get 6%.

InMyDreams

Claremac wrote: »

Inmydreams, I had realised that I would have to pay tax after a few months. Would it be best to wait until I reach the level where I need to pay tax and then declare it or just claim it all back at the end of the tax year?

Yes, you would be better not paying tax until you had to rather than claiming it back at the end of the year, but it's not really a question of what would be better. You pay the tax by default unless you fill in the R85. You are not allowed to fill in the R85 if you expect to be over your allowance by the end of the tax year, which unfortunately for you has just started. I suppose you could conceivably argue that you don't expect to reach that level if you are hoping to buy somewhere very quickly, but I think you'd be pushing it.

Claremac

Thanks for that. You're right, I think we'd pretty much have to find the house we want to buy straightaway to avoid having to pay tax on our savings. I suppose that I should look on it as the taxman looking after my money for me and look forward to getting it back next April/May!

earlgrey_3

Hi Clare, As IMD has said, if you anticipate an income above your personal tax allowance you can't sign R85 and so the bank will automatically deduct tax that you have to reclaim. How to claim tax back: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/ReclaimingTax/DG_10026651 .

On annual or monthly interest, sorry, it gets a bit complicated.

Normally even if the AER (annual equivalent rate) is the same for both monthly and annual interest you'll end up with just a smidgeon more with the annual rate unless the date you close the account is after exactly 12, 24, etc months. It's only a very small amount but the AER is only the same after exactly a full year. Close the account at 9 or 18 months and even with the same AER the annual interest account gives a few bob more. I'll give you more detail if you want it.

In your case I think though what you need to do is to make sure you get enough interest this year to make use of your personal allowance. Either by opting for monthly interest or by closing the account before 5 April 2009 to get the annual interest paid to you. Otherwise you won't get the interest paid until next tax year and will lose the allowance for this year. I think the amount of tax you could get refunded next April should be about £1250 or so.

With that NR account the monthly account has a slightly lower AER too (5.9%) so, unless you need a monthly income, that probably tips things in favour of annual interest and closing the account at the right time - before 5 April. The 1.24% introductory bonus ends after 12 months any way.

If you want to work your money hard you need to seek out the best rates and move your savings at the right time. Not everyone has the time to do that but you do need to check the rate you're getting every few months - especially with a large amount of dosh.

Claremac

Thank you for that detail Earlgrey. I hadn't thought it through that I would need to close the account before 5th April to get the interest paid this tax year but that would tie in pretty well with the end of the bonus introudctory rate too. That is assuming that we haven't bought a house by then and don't have any more savings! Mind you, I will need at least some of the money to pay the rent but I can keep my savings account topped up and transfer it to my current account as necessary. I will keep an eye on this forum though in order to keep up with the best rates. Thanks again.

Claremac

Aaaaaagh just as I decided that NR was the way to go they have announce that their rates are being reduced on 7th May and the Tracker Online will go down to 5.74%. Guess which day we're completing on our house and the money goes into the bank..................

Going to have to look to see whether there is anything more competitive now :mad: