Best savings account?

ci_newman said:
If you've exhausted your tax-free savings options (PremiumBonds and ISA) then overpaying is the better choice when your rate is 3.95%
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The premium bonds will soon be exhausted, however i dont have an ISA

instead of an ISA i was looking to setup a fixed term bonds savings ?
 
DJMK4 said:
The premium bonds will soon be exhausted, however i dont have an ISA

instead of an ISA i was looking to setup a fixed term bonds savings ?
Click to expand...

You just need to be aware that fixed bonds savings will attract tax if you've exceeded your allowance for the year (£1000 for basic rate earners, £500 for higher rate earners).

In my case, it's better to save in an ISA @ 4% which is tax free than fixed term bonds @ 5% which incurs tax (for me).
 
ci_newman said:
You just need to be aware that fixed bonds savings will attract tax if you've exceeded your allowance for the year (£1000 for basic rate earners, £500 for higher rate earners).

In my case, it's better to save in an ISA @ 4% which is tax free than fixed term bonds @ 5% which incurs tax (for me).
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So if i am nearing 50k in premium bonds soon then i will get taxed if i start saving in to a fixed term bonds ?

I am not clued up on tax on savings, i will have to read up on it,

was hoping to use a fix term bonds as you generally make more off interest if you lock it away for half a year or a year than you do in an ISA.
 
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DJMK4 said:
So if i am nearing 50k in premium bonds soon then i will get taxed if i start saving in to a fixed term bonds ?

I am not clued up on tax on savings, i will have to read up on it,

was hoping to use a fix term bonds as you generally make more off interest if you lock it away for half a year or a year than you do in an ISA.
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No part of premium bonds incur taxes, so you can forget about them :) (they are considered gifts or prizes, not interest)

You pay tax on interest earnt from savings in line with your income tax bands.
  • For a basic rate tax payer, the first £1000 of interest / year is untaxed. For interest > £1000, you pay 20% tax
  • For a high rate tax payer, only the first £500 of interest / year is untaxed. For interest > £500, you pay 40% tax
  • For additional rate tax payers, you do not get any tax-free interest, For interest > £0 you pay 45% tax
Interest earnt inside an ISA/LISA is not subject to tax at all.

To give you an example, if your savings were worth £10000 and you are a high rate tax payer, at 5% interest rates you'd earn £500 interest and there would be no tax to pay.
If your savings were £20000 and you were a higher rate tax payer at 5% interest rate you'd earn £1000 in interest that year. The first £500 would be tax free, the second £500 would be taxed at 40%, so your actual "take home" would be £700 from that £1000 of interest, which is actually only a return rate of 3.5%.

So an ISA paying 3.8% interest would earn you more interest than a standard savers account at 5% when considering tax implications for a high rate earner (salary over £50k / year).
 
ci_newman said:
No part of premium bonds incur taxes, so you can forget about them :) (they are considered gifts or prizes, not interest)

You pay tax on interest earnt from savings in line with your income tax bands.
  • For a basic rate tax payer, the first £1000 of interest / year is untaxed. For interest > £1000, you pay 20% tax
  • For a high rate tax payer, only the first £500 of interest / year is untaxed. For interest > £500, you pay 40% tax
  • For additional rate tax payers, you do not get any tax-free interest, For interest > £0 you pay 45% tax
Interest earnt inside an ISA/LISA is not subject to tax at all.

To give you an example, if your savings were worth £10000 and you are a high rate tax payer, at 5% interest rates you'd earn £500 interest and there would be no tax to pay.
If your savings were £20000 and you were a higher rate tax payer at 5% interest rate you'd earn £1000 in interest that year. The first £500 would be tax free, the second £500 would be taxed at 40%, so your actual "take home" would be £700 from that £1000 of interest, which is actually only a return rate of 3.5%.

So an ISA paying 3.8% interest would earn you more interest than a standard savers account at 5% when considering tax implications for a high rate earner (salary over £50k / year).
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Thanks for the explanation makes sense.
 
200sols said:
Just buy short dated gilts in the ISA, yields to maturity are above 5%.
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Good call. there are some gilts etc options in Vanguard.
Need to look through them all to see which ones are lowest risk and hence least like to deviate much.
(I don't specifically need the cash, but I might so dont want to put into anything potentially short term volatile)
 
Raymond Lin said:
Just got the £100 from Nutmeg! woot!

Will withdraw it all when i get home. Need that £1000 for a new computer lol
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Just closed mine/submitted the withdrawal request. Can't assess them on returns given the market, but they're really expensive compared to other providers.
 
DJMK4 said:
Thanks for the explanation makes sense.
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But the maximising position in his example is put £10k in savings at 5% and pay no tax
Put £10k in ISA at 3.8%
Earn £500 = £380 = £880.

Ie you max the highest rate until tax is payable. Then you need to reduce the effective rate on any further investment in taxable accounts by your marginal tax rate (ie 20 or 40%) and recompare.

There is another impossible to predict long term issue. If you had paid into ISAs for years you would be earning all that tax free. If you had chased slightly higher rates in normal accounts you now may have no ability to avoid tax.
It all depends on how much your saving and for how long. (Its a guessing game unfortunately)
 
Mercenary Keyboard Warrior said:
But the maximising position in his example is put £10k in savings at 5% and pay no tax
Put £10k in ISA at 3.8%
Earn £500 = £380 = £880.

Ie you max the highest rate until tax is payable. Then you need to reduce the effective rate on any further investment in taxable accounts by your marginal tax rate (ie 20 or 40%) and recompare.

There is another impossible to predict long term issue. If you had paid into ISAs for years you would be earning all that tax free. If you had chased slightly higher rates in normal accounts you now may have no ability to avoid tax.
It all depends on how much your saving and for how long. (Its a guessing game unfortunately)
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Yes, there are many "what if" situations, I was just given some background on the interest tax charges.

As someone else mentioned, within an S&S ISA you could also purchase bonds at 5% which would blow most easy access savings out of the water (but comes with a very small risk).
 
Looking at Vanguard there are not many options for bonds at all.
I think the only one that could meet the criteria is The UK Government Bond Index, but its actually quite high risk (5 / 7)

It had pretty lousy performance as well. Although I suspect this is due to the increasing rates, so the value of the bonds themselves that were at low rates falls.
Past performance should in theory be baked in , ie bonds bought at a low rate that are now far less attractive.
 
Mesai said:
Just closed mine/submitted the withdrawal request. Can't assess them on returns given the market, but they're really expensive compared to other providers.
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I don’t see how to do it. The email said I could transfer it to the existing pot or withdraw it. There’s no option to withdraw.

/edit - oh, I see. It can’t be done via the app.
 
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