Current account or ISA

lynseydee

My current account pays me 6.1% and my ISA pays I think its 5.35%. At the moment I tend to transfer the interest I earn from my current account into my ISA as I can't afford to put away any real savings but have over the last couple of months noticed I have some money left over before payday. Would I be better off transferring this money into my ISA or leaving it in my current account. I am a tax payer and not sure how to work out exactly what I am being paid in interest on my current account.

Could somebody please let me know what the best thing to do is?

Thanks

Lokolo

Normal Rate Tax Payer = 0.8
Higher = 0.6

Times the above against the rate and you will get the actual rate.

So 6.1 * 0.8 = 4.88%

So you are getting an extra ~0.5 with the ISA.

debbie42

If you are a basic rate tax payer, you will pay 20% tax on your interest. So, 6.1% will net down to 4.88%. The ISA has a better return, based on this.

5.35% isn't a brilliant rate for an ISA at the moment, though!

lynseydee

Thanks Lokolo and Debbie. So it looks like I should transfer everything into my ISA before payday. I know 5.35% isn't a great rate but I think I have just got used to the ease of use with the website on my ISA that I haven't looked to change plus with the interest rates changing all the time sometimes I think it's better to stick where I am.

Lokolo

Yep just don't forget if you take money out of the ISA you cannot replace it. Once you h ave deposited £3600 thats it for the rest of the tax year even if you take some out, so if you are likely to need some money within the year, don't put it in there until you can really keep it in there.

cheeks

Lokolo wrote: »

Normal Rate Tax Payer = 0.8
Higher = 0.6

Times the above against the rate and you will get the actual rate.

So 6.1 * 0.8 = 4.88%

So you are getting an extra ~0.5 with the ISA.

Thanks so much for this post, ive wondered the same as the O/P in the past and have never seen it explained so plainly before! Thanks again:T

wooders

Your current account will be taxed so assuming the 6.1% is AER this will be below the isa rate, by the way the isa rate is rubbish.
Transfer it over to a 6% or above. There is loads of advice on these boards, barclays looks good but has poor customer services, Alliance and Leicester also looks a good un. I suggest you pick one that you can manage ie are you an internet banker, do you want a UK bank, do you want to be able to go into a bank, what access do you want.
Never withdraw the cash !!!! whatever isa you chose that allows transfers will do this procedure for you

I'm sure others will add to this but I hope this helps:T

lynseydee

Hi Wooders

Thanks for that. I actually bank with A&L so I guess that would be a good one. I'm really using my ISA as a savings pot so if I need some money I have it saved away. Although I haven't taken any money out of it since I got married 4 years ago I want to start using it more as a pot of money as and when I need it. I'm not an extravagant spender but it would be nice if I saw something I really wanted I had the money to pay for it without putting it on a cc. Is a savings account better for this than an ISA?

With regards to what Lokola said there is no way I would be able to put away £3,600 over a year so don't have that to worry about. Maybe once the cc's are paid off I will.

wooders

Depends on you really, it sounds like you have an old isa ticking away in the background, you should open a new one for this year, even if you only put £20 in it, it will still be working harder. Whatever you have in your old isa, think, how much of that do you want to save--ie not use.. get that transfered to a new one (note transfer not withdraw) and top it up when you want. The rest (ie whats left in the old isa) could be used as you shopping cash if you wanted, or even pay off the cc ?. As you are with A&L I suggest you go to the branch and discuss your options
wooders

lynseydee

Thanks Wooders. Do you mean have two ISAs on the go at the same time? I thought you could only contribute to one ISA a year. Or have I misunderstood completely? Sorry not very good when it comes to financial things.

wooders

No but yes
You can only contribute to one isa per financial year upto £3600
The old one/ones can be transfered to a bank with a higher rate of interest when you open this (or leave it where it is at the lower %rate)
This does not affect the 1st point

eg In 2005 you opened ISA with A&L that max £3000 at the time. The monthly/yearly/daily interest on that are NOT contributions so may have over 3 years gone upto say £3200. You can transfer this, whilst opening this years isa (ie another £3600).

Some savers on here have ISA pots that have £20000+, they just open new ones every year, fill it and accumulate it. So in effect YES you can have 2 isa's in a year but you can only put money into 1 isa

hope this is a little clearer