Several smaller value high interest accounts or one or two ISA type accounts

[m4rky1985]

Hello.

I'm after a little bit of advice on what to do with some money we've just received please...

We've got £40k to play with and its purely to be saved/invested for at least the next 12-18 months. Every other area usually discussed pensions/mortgage overpayments etc are in hand so this money is purely to be put somewhere to generate as much interest as we can for now.

I've got a few thousand in trading 212 investments but don't really want to risk this lump sum on there and will just continue to top that up with spare cash.

So I've just opened another First Direct savings account - this is 7% but only allows you to save £300 per month over 12 months so will generate around £140 per account. I've also got a Lloyds one running at 6.25% - £400 per month and a Nationwide account at 6.5% but only £200 per month. My wifes just opened a Lloyds one as well and will open a FD one if its worth while.

Are these smaller accounts above worth it if I stick say £15k in a normal savings account at a couple of percent and drip feed them each month or would I earn more money over 12 months with 2 x £20k ISA's and leave the money in them??

Sorry if it seems a very simple answer but I'm a little confused what will work out the best for us....

Many thanks

You need to balance the tax you might pay on interest earned in a high interest account with the interest rate on an ISA, where interest is tax free.
Disclaimer - not a financial advisor in any sense of the word but it makes sense over the longer term to have money in ISA's. Since you can only invest 20 K in any tax year it would make sense to splitthe40 K, put 20K in an ISA and the rest in a high interest account

Because of the way the regular savings accounts work (you only get 7% on the first £300 as that is the amount invested for a whole year) - it is the equivalent of an APR of about 3.5% (ie half of the advertised rate). Of course you earn more on your money if some is in another savings account for some of the year eg Kent Reliance have an Easy access one at 4.33%. I think you need a spreadsheet to work out what you would actually earn overall by drip-feeding rather than leaving it in one place.

If you are higher rate tax payers, you can earn £500 in interst per year tax free, £1000 if you are lower rate tax payers. If you are investing 20K each (rather than 40K) for one of you, I would estimate the interest to be in the region of £800 for the year. Thus if you are higher rate tax payers you may be better off with a cash ISA. They have similar rates (about 4.3%) available.

For the basic arithmetic, MSE has a calculator that might be handy on drip-feeding a lump sum into a regular saver:
https://www.moneysavingexpert.com/savings/regular-savings-calculator/

But as PPs have said, knowing which tax bracket you sit in and how much you have of your allowance available is key.

Thanks for the replies 🙂

Unfortunately we are both 40% tax payers, so I'm guessing at least one ISA might be a good choice? I see the trading 212 one offers quite a good rate still?

Then maybe put the rest in a easy access savings account i.e Kent Reliance and drip feed the other accounts each month between us so we'll always been earning a bit of interest whilst sat in any of the accounts?

would you be using your isa allowance otherwise? If not then best bet as 40% tax payers is 2x fixed rate cash isa for a year if you’ll need it then.

I’d normally advocate for S&S ISA but not for such a short term

Do you plan on putting any other money in ISAs over the next ~7 months of the financial year?

If not, noting you want the cash in -12-18m, I’d put it in a cash ISA so you don’t pay tax on the interest.