Savings account or ISA

[Eiremogra]

Hi all, I am embarrassingly uninformed about savings and investments. I tend to put any savings I have into a Capital Credit account which seems to have a rubbish rate of interest so although not much money is in the account, I’d still like to make the most of what I have. I am over 40 and feel clueless when it comes to money!! I have spend hours and hours trailing through the Martin Lewis site but would appreciate some advice from my fellow ladies here. Where to start with savings… SOS!!x

How much do you have to save? Do you need to be able to access in the short term?

A few things to consider - are you a higher rate tax payer, moving a lump sum, how much, and do you need easy access to it?

If not a higher rate tax payer you can earn £1000 of interest a year without paying tax...I think Martin Lewis worked this out at roughly £20k. ISAs are good if you think you will go over this amount as they are always tax free. ISAs allow you to save a maximum of £20k per year.

Higher interest rates tend to be payable on locked in rates, ie 12 months. You can also get good rates on regular savings, but these tend to be limited ie £150 or £200 per month.

Martin Lewis website frequently update the top savings accounts.

What are the savings for? How soon you would take money out will help determine what type of account you use.

My emergency fund is held across several instant access savings accounts & bank accounts.

Go through the financial flowchart.

Maybe this is emergency fund money so would not be invested.
Maybe this is for medium to long term investing within ISA.
Maybe this is very long term investing within Pension.

ukpersonal.finance/flowchart/

You can put a maximum of 20k per year into an ISA & all the interest is tax free, then up to another 20k the next year, then 20k every year ongoing

Do you pay into a work pension ? Because your employer may add free money & the tax is also added in.

Regular savings only pay half the amount of interest
Example
Bank advertises interest rate of 7%
You pay in the same amount each month
At the end of the year, you will receive 3.5% interest ( half of 7%) due to how compound interest works

Therefore, you would be better off finding a saving account or ISA that pays 4 or 5 plus %

Hope that helps ?

Look here
www.money.co.uk/savings-accounts/pm-1