ISA or Regular Savings Account?

[craig@rewind]

I had £4,700 with Icesave and have got it back today. Should I put it in another ISA tax free or put it in Tesco's 6% savings account? I know I will be taxed on it but it is a higher rate.

Opinions?

[farmroad38]

Are you a higher rate tax payer? Do you need instant access to the money or can you lock it away for a fixed period?

[craig@rewind]

Are you a higher rate tax payer? Do you need instant access to the money or can you lock it away for a fixed period?

I can lock it away for a year if needs be. No I don't believe I am a higher rate tax payer. How is that worked out? Is it over £40k? If so, does that take into account bonuses?

[farmroad38]

You're a higher rate tax payer if your total income (including basic and bonuses) is over £40,835. If you are a higher rate tax payer, then all of your savings income will also be taxed at the higher rate (unless it's in an ISA obviously).

[neilalford]

By a "Regular" savings account, do you mean one where you put in a fixed amount each month over the course year? In which case, that's not a good way to do it if you have a lump sum of cash that you could pay into an account, as the interest rate works out at the equivalent of half the stated rate in that situation.

[craig@rewind]

Yeah it is this one: http://www.tescofinance.com/personal/finance/savings/savingsaccounts/internetsaver/index.jsp

I would transfer the money from my Icesave ISA into a new one but I don't seem to have a record of my ISA certificate. I don't think I ever received one. Do the FSCS send one out after your money has gone in?

[neilalford]

Yeah it is this one: http://www.tescofinance.com/personal/finance/savings/savingsaccounts/internetsaver/index.jsp

I would transfer the money from my Icesave ISA into a new one but I don't seem to have a record of my ISA certificate. I don't think I ever received one. Do the FSCS send one out after your money has gone in?

For that account then it will just come down to the rate you can get in an ISA, if you're not a higher rate tax payer then an ISA paying more than 4.8% would be better (no idea if anywhere's paying that sort of rate these days though).

However, if I understand correctly, this is money you've got from the compensation scheme after Icesave went bust, so don't know if you could transfer the full amount into another ISA or even open a new ISA this year anyway. Normally you can only transfer from one ISA to another and only open one per year with a max of £3600. So unless there are special rules for money received from the compensation scheme you may not be able to put it into an ISA until the next tax year anyway.

[craig@rewind]

For that account then it will just come down to the rate you can get in an ISA, if you're not a higher rate tax payer then an ISA paying more than 4.8% would be better (no idea if anywhere's paying that sort of rate these days though).

However, if I understand correctly, this is money you've got from the compensation scheme after Icesave went bust, so don't know if you could transfer the full amount into another ISA or even open a new ISA this year anyway. Normally you can only transfer from one ISA to another and only open one per year with a max of £3600. So unless there are special rules for money received from the compensation scheme you may not be able to put it into an ISA until the next tax year anyway.

Yes there is a special allowance for Icesave customers so I am allowed to transfer all of my money into a new ISA. However ISAs don't get above 4% and most are between 3 and 3.5% so the Tesco deal is looking better I think.

[neilalford]

Yes there is a special allowance for Icesave customers so I am allowed to transfer all of my money into a new ISA. However ISAs don't get above 4% and most are between 3 and 3.5% so the Tesco deal is looking better I think.

Yep, it does seem a pretty good rate, though see that 1.5% of the rate is a bonus that has terms and conditions attached, so you'll probably want to check what those are. Also, it's obviously not a fixed rate so it could drop in the future and if you're tied in by the terms and conditions of the bonus you could find yourself stuck on a low rate in the future. Though I don't think anyone is likely to be offering great rates for a while anyway, so you're unlikely to miss out on much.

[Wooglie]

Do the FSCS send one out after your money has gone in?
I got my money last week and you get the certificate 2 weeks after the money IIRC.

The problem with putting it into the tesco account is that it will lose its tax free status, so you won't be able to put it back into an ISA later.

[farmroad38]

Yes there is a special allowance for Icesave customers so I am allowed to transfer all of my money into a new ISA. However ISAs don't get above 4% and most are between 3 and 3.5% so the Tesco deal is looking better I think.

Blimey, ISA rates have come down in the last couple of weeks haven't they? I managed to get a Birmingham Midshires ISA about four weeks ago at 6.15%. They've still got 1 year fixed rate ISAs at 4.5% though. http://www.askbm.co.uk/savings/p/isa/intro.asp

If you are a higher rate taxpayer, your Tesco account is worth 3.6% after tax.

[At The Gates]

How are any savnigs you have taxed? I have been putting a fair amount of money into my savings account recently, and gaining the net interest monthly. Is the tax deducted when i withdraw the money or each month by the bank? Do i have to fill in a tax form or something?

[neilalford]

How are any savnigs you have taxed? I have been putting a fair amount of money into my savings account recently, and gaining the net interest monthly. Is the tax deducted when i withdraw the money or each month by the bank? Do i have to fill in a tax form or something?

If you're a standard rate tax payer then the tax should get automatically deducted from the interest I believe, you only have to do anything if you shouldn't be paying tax on it (i.e. for under 16's etc.). If you're a higher rate tax payer then the difference in tax should sort itself out when you do your tax return for the year.

I think.

[farmroad38]

Usually, the interest paid on your account will already have been taxed at the lower rate. If you are a higher rate tax payer, you have to declare your interest on your tax return and then pay the difference either via an adjusted tax code for the next year, or directly to HMRC.

[At The Gates]

Hmmm. I see. So i need to do a tax return then? I've only been a higher rate payer since September. Do i only need to pay the extra for the interest earned since this period? Does this apply to any savings earnt on money in my current account too? All my accounts have been earning net interest.

[farmroad38]

When you say you only became a higher rate tax payer in September, what do you mean? If your salary was increased to over the tax threshold at that point, I'd say it's unlikely you'll earn enough before April to go over the limit - the tax rate is based on what you have earned in the tax year, not on what your annual salary is at the end of it.

If you are at the higher rate, then all interest earned in the tax year is taxed at that rate.

[At The Gates]

Yeah, my salary was raised to over the threshold in September when i got a payrise. But my savings now are not being taxed at the higher rate are they? The banks don't know how much i earn.I guess i'll just have to ring the tax office up. Joy!

[farmroad38]

Unlikely then that you'll exceed the upper rate band by April (unless your salary is now quite a way over £40k), so you've nothing to worry about for now. Next year, though, you'll need to fill in a tax return.

Banks will never tax you at anything other than the lower rate. The difference between that and your upper rate is handled by your tax coding being altered in the year after you declare the interest.

[Flap]

You're a higher rate tax payer if your total income (including basic and bonuses) is over £40,835.

And savings/dividend income. Less personal allowance - and it's over £34,800?

[farmroad38]

And savings/dividend income. Less personal allowance - and it's over £34,800?

Personal allowance of £6,035, plus higher rate tax band of £34,800 = total salary over £40,835.

[craig@rewind]

Personal allowance of £6,035, plus higher rate tax band of £34,800 = total salary over £40,835.

So I have to let the tax man know if I am earning over £40,835??! Isn't it all taken care of via my PAYE system with work? And as for savings isn't it covered off via my National Insurance number?

[farmroad38]

Yes, in theory your PAYE should mean you pay the correct amount of tax on your salary, but as I said before, banks will never deduct anything more than basic rate tax from the interest they pay you.

[Flap]

Personal allowance of £6,035, plus higher rate tax band of £34,800 = total salary over £40,835.

oops :)

course :)