Which saving account is the better option

[highpeakrider]

I can have a Lloyds club account which gives

6.25% AER/gross fixed interest. This is paid after 12 months, you can only save £400 a month for 12 months.
I'd then have to start a new 12 month account, this then reverts to a standard savings account and I'd have to transfer it as the pay about 1%.

Cash ISA paying 3.75%.

I have £40K in the ISA, so am I better off just adding to the ISA, or adding £400 a month into the Lloyds account , then after 12 months transfer that money into the ISA after 12 months.

[stevel123]

It depends which income tax band you are in; if you are a basic rate tax payer the Lloyds account make sense, but if in the 40% then there s little in it, but a 45% tax payer pays tax on all savings so the ISA wins, but only makes a couple of pounds difference either way.

Edited by stevel123 on Thursday 6th November 18:16

[Techno9000]

highpeakrider said:

I can have a Lloyds account which gives

6.25% AER/gross fixed interest. This is paid after 12 months, you can only save £400 a month for 12 months...

Cash ISA paying 3.75%.

.... am I better off just adding to the ISA, or adding £400 a month into the Lloyds account...

Another consideration... if you have the 12 months worth of £400pm available to invest now, then the ISA will earn you more interest over the initial 12 months.

Saving £xx pm @ 6.25% over 12 months realises half the interest rate on the total amount saved over the 12 month period, in this case 3.125%.

These 'regular saver' accounts have inviting interest rates, but always limit the monthly savings, you can get a better effective rate in many other accounts if you have a lump sum to save.

[PistonHead007]

If you have the £4,800 available now then it's better in the ISA as you're earning interest on the whole amount for 12 months, giving you a true 3.75% tax free.

If you only have the £400 available each month then the saver is worth it. You'd end up with 3.39% before any tax on the £4,800. This is because you've only got one month earning the full 6.25%. The rest of the months are increasingly smaller fractions of the 6.25% as they're invested for less and less time. Marketing gimmick really.

If you did regular savings into the ISA you'd end up with 2.03% on the £4,800 with no tax.

[MB140]

mosbacher said:

Whack it into gpt? GPT is quite helpful for this kind of stuff:

Option A Lloyds Monthly Saver
6.25% AER (fixed for 12 months)
Save up to £400 per month (£4,800 total over the year)
Interest paid at the end of the term
Average balance ? £2,400 ? Interest earned ? £160 after 12 months
Effective return on total deposits ? 3.3%
Interest is taxable, unless it falls within your Personal Savings Allowance (£500 for higher-rate taxpayers, £1,000 for basic-rate).

?

Option B Cash ISA
3.75% AER (variable)
Flexible contributions
Interest earned on same monthly saving ? £90 after 12 months
Interest is completely tax-free
Accessible anytime

Verdict
If you re under your Personal Savings Allowance, Lloyds wins clearly nearly double the return.
If you re already over the allowance or a higher-rate taxpayer with other savings interest, the ISA may be better for tax-free growth.

Best combo:
Use the Lloyds Monthly Saver for £400/month (to capture the 6.25%), then add any extra savings to your Cash ISA.

I m a 40% tax payer. Money saving expert has a calculator on its website where you can put all this info in (or just use ChatGPT as above.

Ultimately I put £300 a month in to my first direct 7% account. Then about 700 a month in to a cash isa 4,87% and 300 in to a medium risk S&S isa.

[highpeakrider]

Thanks for the info, I'll continue with Lloyds for another year and transfer to my ISA at the end.
I'm just a retired basic rate tax payer.

[Hustle_]

On a regular saver, if you contribute the same every month, you basically end up getting about half of the headline rate on the ultimate balance- because the duration is fixed and on average over the year the account has about half of the ultimate balance in it.

[xeny]

mosbacher said:

Whack it into gpt? GPT is quite helpful for this kind of stuff:.

Be very careful in trusting it- I've had Chat GPT confidently state that if I took 4% from an investment specified to be returning 8% that the investment would fall in value. It was obsequious when I pointed out this was wrong, but that doesn't help you down the line if you've acted on a spurious statement.

[Ydnaroo]

highpeakrider said:

I can have a Lloyds club account which gives...

You can have the normal Lloyds Monthly Saver £250pm @ 5.25% as well as the 'Club' version. You can have both in each name if you have a joint account.

[C69]

highpeakrider said:

Thanks for the info, I'll continue with Lloyds for another year and transfer to my ISA at the end.
I'm just a retired basic rate tax payer.

If you're a basic rate taxpayer, remember that you get a Personal Savings Allowance of £1,000 (i.e. you can earn up to £1,000 in interest without paying tax on it). I mention this because non-ISA savings accounts typically pay better rates than their ISA equivalents, so I'd be making sure I'm taking advantage of the PSA first.

I'd also shop around for a better ISA rate. >4% is easily achievable on both instant access and fixed rate ISAs at the moment.