The new Personal Savings Allowance (PSA) now means that many savers won’t pay any tax whatsoever on the interest from their savings.
Under the new rules, introduced from 6th April 2016, basic rate (20%) taxpayers will be able to receive up to £1,000 in interest each year, tax-free. For higher rate (40%) taxpayers this drops to £500.
So, following this change, how do the interest rates on ‘traditional’ savings accounts and Cash ISAs (Individual Savings Accounts) compare?
Let’s take a look:
Instant access accounts
Best Cash ISA: Punjab National Bank Cash ISA, 1.65% gross AER
Best ‘traditional’ savings account: Coventry Building Society Easy Access Saver, 1.30% gross AER
Winner: Cash ISA, if you’re a saver put off by using a bank which for you isn’t a household name, it’s worth noting that there are a number of other Cash ISAs which pay a better rate of interest than ‘traditional’ savings accounts.
One-year fixed rate
Best Cash ISA: Punjab National Bank Cash ISA, 1.75% gross AER
Best ‘traditional’ savings account: Turkish Bank, 1.80% gross AER
Winner: Cash ISA, but only just and the rates fall far more quickly for Cash ISAs compared to those for ‘traditional’ savings accounts as we search for more household names.
Two-year fixed rate
Best Cash ISA: Punjab National Bank, 1.90% gross AER
Best ‘traditional’ savings account: State Bank of India, 2.20% gross AER
Winner: ‘Traditional’ savings account, and again, the rates fall away far more sharply for Cash ISAs than they do with ‘traditional’ savings accounts.
Please note, only accounts which are widely available and have Financial Services Compensation Scheme (FSCS) coverage have been included, those with geographical or membership restrictions have been excluded.
A word of warning
If you are planning to plough ahead and open a ‘traditional’ savings account instead of a Cash ISA, just pause and think for a moment.
Cash ISAs are a long established method of saving, to which the Government is clearly committed, as demonstrated by the various new ISAs being launched and the increase in the amount you can pay in each year. Whereas the PSA is simply an allowance, which would be relatively easy to remove or amend in the future.
Of course, we have no special insight into potential changes to the PSA, we are just nervous that if it is changed in the future, many savers could have missed out on the opportunity to shelter their money from the taxman in Cash ISAs.
We are here to help
We accept though that balancing the need for the best possible return now, with potential changes is a tough decision.
We’re here to help though.
If you would like to talk to us about your savings call Sarah or Bev on 0115 933 8433 or email info@investmentsense.co.uk
Please note: The Financial Conduct Authority does not regulate deposit accounts