Should I put this money into this year's ISA allowance, or go for a higher rate savings account?

[whenthetimecomes]

Hi, any advice from more financially experienced folk than me would be very gratefully received on this dilemma. I can't quite decide which of these two options should be my priority. The ISA route would protect my cash from future tax, but (for the same cash) the savings route actually makes me a bit more money!

I have inherited enough to fill this year's ISA allowance (£15240) and the cash is currently sitting in a savings account. However, I know that it makes sense to put as much as possible into an ISA each year. The trouble is, ISA rates everywhere are so rubbish at present; and what I'm getting in interest on this savings account isn't great, but it is a bit more than I would be able to get in an ISA, as far as I can see (having done a bit of research).

Should I stick with the savings account or move the money into this year's ISA? I could wait until next March and then move it quickly into an ISA before the start of the next tax year, thus earning a year's interest first before protecting it in an ISA - but I expect that quite possibly, by then, any ISA rates that are still available will be even lower then than they are now.....Many thanks in advance for any advice!

Have you looked at Santander . The interest paid is probably higher than an ISA

Thanks for this suggestion , yes I think Santander do probably pay the most interest, via their 1-2-3 account. However to get the best rates I'd have to switch my current account to them, and I want to stay with my current bank.
I think I'm basically wondering whether sheltering the money in an ISA should always take priority over putting it elsewhere, even though the latter could be more lucrative in the current low interest situation. A crystal ball would be useful....!

Could you not open the Santander and keep your current account?

It only needs 2 direct debits set up and £500 monthly payment in - which I believe could be transferred in from your existing current account and sent back out again

Wow, that's a good idea - I hadn't realised it was that simple. Do lots of people have more than one 'current' account just for this reason? I think I kind of assumed that you had to have just the one current account. (Presumably Santander would know that it wouldn't be my 'real' current account, because of so little activity on it - would they actually mind?)

As long as you follow their terms it's fine. It's nice to get interest , I changed from HSBC as they took me for granted!

Some banks do require you to formally switch your existing current account to them (Nationwide I think is one) but Santander don't. As Chish said, 2 direct debits every month, pay in £500 monthly, and £5 monthly charge. The interest rate is 3% at the moment (slightly less after you factor in the £5 a month charge) but the recent introduction of tax-free interest helps to counterbalance the £5 charge.

From a security point of view, if you're using a high interest current account primarily as a savings account with a lot of money in it, I think it's wise to operate a second current account as your 'proper' account to do most of your day-to-day transactions, in order to reduce the chance of someone getting hold of your debit card and clearing out your savings account.

TSB is another who offers interest on current account balance. Need to follow the rules though, paying in the minimum required each month. I move money from one account to another to keep all the rules happy and found that in doing so, HSBC upgraded one of my accounts as it had more money coming in to it (they just count the incoming, not noticing the money coming in is what went out a few days prior!). That upgrade then resulted in a little higher interest rate offered on other savings products.

Wish we could just have a nice simple account that pays decent interest. Alas long gone are the days of 5%+ interest on savings.

You can get 5% or more, but only on a relatively small amounts. As only the current accounts pay any real interest, inflation being what it is, those with cash savings need to have many current accounts. Nothing to stop that.

Thanks to everyone who has commented or suggested here - given me lots to think about. I'm definitely going to look into opening a Santander current account now for some of those savings.