Paying tax on interest earned.

[Wingedharpy]

I'm not a natural when it comes to finances so am keen not to get myself into a mess with money.

I'm looking to cash in some cash ISA's and reinvest some of the money into a savings account or two, paying better interest rates.

As ISA's are tax free, I've never concerned myself with the tax issue but, if I earn over the threshold in interest with new savings accounts, how is any tax due paid?

Is it just deducted by the bank/building society before the interest is credited to the account or do I have to tell someone and fill forms in?

Ypu have to fill out a tax form.

But only if your total income from interest is over £1000, which is almost impossible in the current climate

It’s £1000 if you’re a basic rate taxpayer, £500 if you’re a higher rate taxpayer.

What's the difference in interest rates between the savings accounts you're looking at and ISA rates? Because cash ISAs with good providers have increased recently and you can get at least 1.3% with a 1-year fixed rate ISA and more for longer fixes.

These building societies have consistently good rates:

www.leedsbuildingsociety.co.uk/savings/isa-tax-free-accounts/
www.coventrybuildingsociety.co.uk/member/savings/cash-isas.html
www.kentreliance.co.uk/isas

Fixed rate bonds pay higher interest but the downside is you can't access the money during the term and, depending on your total savings, you might surpass the £500/£1000 threshold for tax-free interest.

Kent Reliance currently has bonds paying 2.05% and 2.35%:

www.kentreliance.co.uk/bonds