Savings and tax?

[StupidMoneyQuestions]

Hello

Name changed for this as if feels like a really stupid question.

I wanted to check if I am likely to pay tax on my savings and if so do I need to do a self assessment for it?

I have £10,000 in an ISA. I then have three savings accounts. One (with Chase) is for my son and has £6250 in it and I put in £50 a month. The second (also with Chase) has £10,050 in it and I put in £500 a month. The third is a RBS account with £460 in it which I put £150 into each month. The chase accounts both earn 3.3%, the RBS account 6% (which is great but it’s limited to deposits of £150 a month).

What this all means is that I’ll earn about £600 in interest over the year.

DH has an ISA with about £5k in it. He doesn’t have savings accounts - all our money is family money anyway. This means he isn’t using any of his tax free allowance.

We each earn £50-60k.

Will I have to pay tax on my savings? Should I make DH open a savings account to split the money to avoid this?

Thanks

To add, I’m due to give birth to another child in august. It’s likely my grandma will gift DC2 £5000 as she did to DC1, for their future. So that needs to be taken into account too.

6 months into mat leave my pay stops.

what would you do in my shoes?

Are you a lower or higher rate tax payer?

Higher. For full disclosure, DH earns £50k, I earn over £67k (I lied in the OP and said I earned between 50 and 60 but it may make a difference so…).

*I earn £67, not over 67.

So, you’re in higher rate than additional rate (forgot that one!). So you get £500 interest tax free per year, so I think you’d pay tax at your usual rate on anything over that. Remember, you can use up to 20,000 ISA allowance per year, so whatever takes you over I would feed into the ISA.

ISAs are always tax free, so if you or your DH have any allowance left, you can move savings into an ISA. It’s £20,000 a (financial) year each. You can open a junior ISA or normal savings account for your DCs too, although it is their money then.

You can earn £500 interest tax free if are a higher rate tax payer. You are nudging paying tax on the non-ISA money, so use your DH’s allowance too.

Rather than*

If you're a higher taxpayer, I believe you are allowed 500 pounds interest tax free, Lower taxpayers are allowed 1000. Best to put savings in an Isa if you earn more than this

Meant to say the £500 is on non ISA savings.

My worry about ISAs are that they’re so inaccessible. I had one for years with Nutmeg, a stocks and shares ISA, but the rates were so shit it just wasn’t worth it. And it would take a week or more to get money out.

Plus, most ISAs now seem to have rates rather less than the 3.3% I can get in an easy access savings account with Chase, which seems a waste?

with me going on mat leave I worry about my savings being locked away and inaccessible if there was an emergency like boiler breakdown or something.

I will ask DH to set up a savings account so we can use his tax free allowance too. He can’t use Chase annoyingly as the app won’t work on his phone (doesn’t seem to like Google phones?) despite calls to customer service, so will look for another good savings account provider.

I will look to put DC’s money in an ISA. I want to make sure his money is separate so I can trace how much of it there is and so there is no accidental spending of it.

I don’t want an LISA in DC’s name in case for any drastic reason we as a family needed that money beforehand. For example, if it was needed for education, or needed for expensive private medical treatment which we couldn’t otherwise afford. Is that silly of me?

https://www.moneysavingexpert.com/savings/junior-isa/

Also - don’t forget that if you are going to pay 40% tax on interest over £500, an ISA with a lower interest rate may leave you better off. £1000 at 3.3% is £33 before tax but on £19.80 after tax. So you only need 1.9% interest on a cash ISA to get the same interest in £.

You can have an instant access cash ISA, you don’t need stocks and shares

You may be misunderstanding ISAs, you can get instant access ones just the same as normal saving and you're not taking into account the tax you'd be paying on the interest if you don't use an ISA

I had a Google phone and the Chase app worked just fine, does your husband need to update his software?

if you do end up paying tax you probably most likely be able to pay by PAYE if it isn't much as they just alter your tax code for the following year, when you know how much you are over if you get paid that way now. Hopefully spitting the savings accounts and ISAs if needed between both of you will avoid this anyway

Sorry apparently it is a Samsung S

Everyone has been very very helpful. Thank you very much indeed.

Have moved money about accordingly!

You are right that you need to be a bit strategic to minimise the tax you pay on savings interest.

It sounds like DH will remain a standard rate tax payer for at least a year or two unless he gets a few £k pay rise as presumably he pays into a pension, so he won't tip over into higher rate tax until he earns more than £50k after his pension contributions. So you should make sure a lot of taxed savings are in his name, to use up his £1000 allowance.

Definitely make sure you understand the benefit of ISAs, the difference between cash and investment products and the cost of 40% tax on interest earned after your £500 allowance.

Another option to consider would be premium bonds. If you have, say £10k+ in there, the average payout over time should be close to the stated payout rate of 3.3%, your money is risk free and you can get it back within a few days. You're just gambling the interest you would otherwise earn in an instant access account.

The other question would be whether you have a mortgage and what is the rate. If you're not beating the mortgage rate with that earned on savings, you could consider overpaying your mortgage with any spare money that you would otherwise save.

Also, what are your plans for your savings? Because unless you're planning to spend it in the short to medium term (under 5 years, eg for cars or home improvements) you need to be aware that the value of the money is being eaten away by inflation and you may be at the point where you should consider investing the money, either by putting more into a pension, or a stocks and shares ISA.

If you want to find out more, the Meaningful Money podcast (and website/youtube/book) is excellent. There's a huge back catalogue, but the current series is going through the financial flowchart and discussing each step in detail.

https://meaningfulmoney.tv/category/podcast/season-25-finance-os/

Yes, Premium Bonds, DH put money into these as he is not one to be bothered to keep up with interest rates, changing accounts for better rate, worrying about tax etc. DH was getting a low rate because of his apathy so I suggested Premium Bonds to him, you can just put it in and forget about it until you need the money.