When taxable deals earn you more than Isas

SAVERS can earn more interest by putting their money in a taxable account rather than in a cash Isa.

the quirk is the result of a combination of lower rates on tax-free deals and new rules to come in next year.

Some 28 million basic- rate taxpayers will benefit from a new personal savings allowance that gives them their first £1,000 of savings interest tax- free — provided the interest is paid after April 6 next year.

For 40 pc higher- rate payers, the limit is £ 500; 45 pc additional rate taxpayers do not qualify for the new allowance. From next April, interest will be paid automatically with no tax deducted — so you won’t have to claim back the tax and will no longer have to fill in an r85 form to have it paid before tax.

By picking the top taxable oneyear, fixed-rate bond over the best cash Isa, you could earn more than £125 extra interest.

the leading one-year, fixedrate cash Isa comes from virgin Money at 1.81 pc.

But you can earn a higher 2.07 pc before tax in the one-year, taxable, fixed-rate bond from Charter Savings Bank.

the interest will be paid when the bond matures in a year’s time after the new allowance comes in.

It means that as a basic-rate taxpayer you can put £48,000 into this account and earn £994 interest with no tax. that’s £125 more than the £869 you will earn in the best cash Isa.

you can then use the money to fund next year’s cash Isa allowance when the bond matures.

the discrepancy arises as new banks are keen for our funds and offer top-rate taxable bonds. But they have not yet fully turned their attention to cash Isas. Big banks are not interested in wooing money from savers and are competing only on current accounts — and generally offering poor deals to Isa savers. on easy- access accounts, the best rate is 1.32 pc after tax (1.65 pc before) from RCI Bank’s Freedom account. But you can avoid the tax by using the new personal savings allowance.

the best you can do on an easyaccess Isa is 1.55 pc from West Bromwich BS on £15,000 or more, while for smaller amounts it’s 1.4 pc with nationwide.

With the less competitive banks, the gap is even wider.

For example, with Halifax you’ll earn just 0.8 pc on your cash Isa money — less than half of what you can earn with RCI. the Halifax rate is also well below the best taxable easy-access account in the High Street — 1.15 pc from Coventry BS.

Here, your interest is added on the anniversary of your opening the account, so you won’t have to pay tax on up to £1,000 interest if you open it now.

you should check when the interest is paid on any easy-access account as some pay on a specific date. For example, virgin Defined Access Issue 2 at 1.51 pc pays out on June 25 — after the personal savings allowance comes in.

But on the internet version of the same account — Defined Access e-Saver — your interest is credited on March 11, so it will be taxable.

Anna Bowes, director at advice website Savings Champion, says: ‘ Savers with substantial sums should look to use their cash Isa allowance.

‘If interest rates rise in the future, your personal allowance will be used up more quickly.’

At 3 pc, savings of £33,000 will bring you very close to the £1,000 limit.

And married couples and civil partners should bear in mind new rules introduced on December 3 last year, by which widows and widowers continue to enjoy the tax advantages previously held by their partner.