Will my regular saver beat an ISA?

imtheguy

I just opened a new ISA with Barkley but now that the new 10% regular saver has is out with Halifax, does this beat it?... even with the tax considerations?

I read the regular savings account page as below and with a 6.25% Cash ISA it works out that I would be better off with the Halifax regular saver if I'm a "basic tax payer" but not if I"m "At the Higher Rate".
http://www.moneysavingexpert.com/savings/best-regular-savings-accounts

What I can't find anywhere is how to find which category that I fall into and the banks seem none the wiser! I have contacted Halifax and my account with First Direct and Alliance and Leicester but they all say that the tax rate is the same for everyone. This really strange but I can't find an explanation anywhere of what a "basic" vs. "higher rate" tax payer is on this website.

Please help!

imtheguy

fablad75

The regular saver will mature after one year, but an ISA can be carried forward year after year, compounding the interest.

imtheguy

ok thanks for the input, but that doesn't relate to my questions about the tax... the main point is "Am I a basic or higher rate tax payer"?

YorkshireBoy

imtheguy wrote: »

the main point is "Am I a basic or higher rate tax payer"?

If your earnings are more than (approx) £40,000 per year, the chances are you'll be a higher rate tax payer.

giger

I think if you don't know, it would be reasonably safe to assume you are a basic tax payer. If you are on the higher rate and don't know it, something is seriously wrong!

On the whole you should use your tax free ISA allowance first. Whilst you can only actively pay in to one ISA a year, in future years you will continue to earn interest on it & you can open an ISA for each new financial year. Obviously your situation & requirements will dictate which is better.

When the regular saver expires you will need a new savings portal. What you choose next might the key to which option you will benefit from the most.

thumshie

This really strange but I can't find an explanation anywhere of what a "basic" vs. "higher rate" tax payer is on this website.

Was quite easy.. search this site for either "basic rate" or "higher rate" and in the results(for the latter) include:

Interest Rates Guide: Everything you ever wanted to know!... ... Higher Rate Tax. Those who pay the higher rate of tax (roughly those who
earn over £39,825 in 2007/8) pay 40% on both. Non taxpayers. ...

click the link and scroll down abit and:

• Basic Rate Tax. Those who pay the basic rate of tax (roughly those who earn between £7,455 and £39,825 in 2007/8) pay 22% of their employment income to the taxman, but only 20% of their savings income.
  
  
• Higher Rate Tax. Those who pay the higher rate of tax (roughly those who earn over £39,825 in 2007/8) pay 40% on both.
  
  
• Non taxpayers. Those who don't pay any income tax (roughly those whose income is under £5,225 in 2007/8) don't pay any tax on savings. This usually includes students and children, who are taxed like anyone else, but rarely earn over the threshold. If you're a non-taxpayer your savings will still automatically have the basic rate of tax taken off them – this can be reclaimed at the end of the year, alternatively fill in a R85 form at the bank account and they will be paid gross (which means before tax).
  

LongTermLurker

imtheguy wrote: »

I have contacted Halifax and my account with First Direct and Alliance and Leicester but they all say that the tax rate is the same for everyone.

I think what they probably said was "we deduct the same rate of tax for everyone" (or something like that) which is correct; banks deduct tax at the lower rate unless you can prove you don't pay any income tax at all. Anyone who is in the higher rate tax band must pay the extra tax themselves. As giger says, if you don't know, then you're probably lower rate or zero rate.

After basic rate tax, the Halifax would be paying you 8% interest, so that's better than the ISA this year. What fablad75 and giger are saying is that with an ISA, it is tax free forever (or until you withdraw it anyway) so the benefit gets better after a few years.

imtheguy

My Gosh - thank you all sincerely for the tremendous resonses! I never expected such clear and helpful advice!

Yes, I am a basic rate tax payer in that case so seems like the best bet is the Halifax regular saver.

Long Term Lurker, guess what you are saying that this year is the exception to the rule and it's best to go with the Halifax saver this year and transfer to a Cash ISA next year? I will be paying a set amount monthly anyway (no withdraws) so if I transfer the amount saved with Halifax + interest at the end of the year I am effectively compounding my interest anyway tax free next year. I guess I'm not so bother about paying some tax on the regular saver if the overall interest gained is better. Am I correct in my conclusion or have I missed something?

imtheguy

darude

I believe it still depends on how you are going to invest in your savings account.

If you can throw in a lump sum of £3600 into a new ISA account, you will get roughly £200 back after a full year (assuming the rate is about 6%).

If you split your £3600 into a regular saver but putting it £300 every month. Even if the regular saver is paying you 8% (after tax). You will only get about £140.

Mikeyorks

imtheguy wrote: »

I will be paying a set amount monthly anyway (no withdraws) Am I correct in my conclusion or have I missed something?

imtheguy

If it's 'new money' you're saving (i.e it's directly from wages ... you don't have a lump sum) ..... then you're better with the Halifax 10%. And then transfer the amount from there + Interest, at the end of a year ..... to an ISA.

Whereas if you have an existing lump sum of circa £3k + ...... it gets more borderline - but all things considered I would go directly for the ISA in that case. But your post sounds like 'new money' ..... so go via the Halifax initially.

fablad75

Can I just ask - did you edit your original post after I answered it, because I could've sworn that your original question didn't mention your tax bracket!