Brendan Burgess
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Some good points there.
Would anyone have the time to do a comparison of deposit rates, tax impacts and mortgage rates between say the UK and Ireland?
Brendan
Could a new mutual building society be set up?
- Thread starter Brendan Burgess
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Some good points there.
Would anyone have the time to do a comparison of deposit rates, tax impacts and mortgage rates between say the UK and Ireland?
Brendan
marathonic
Registered User
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I've recently moved across the border to Northern Ireland so have done some research on rates.
The best buy current account rate is 3% for up to £20,000 with Santander or 5% for up to £2,500 with Nationwide - but with a 1 year limit before dropping to 1%. Santanders rate has no expiry date but requires a current account that costs £2 per month but offers cashback on household bills paid by direct debit (generally, the cashback wipes out the charge and, usually, more along with it).
Given these rates of 2.4% and 4% after 20% tax, the current accounts are paying more than most ISA's. However, people will not withdraw from their ISA's to fund current accounts because they lose the tax-free status for this year and all future years. In general, they use these accounts for new savings only.
The best buy variable rate instant access ISA rates are 2.5% and your annual Cash ISA allowance is £5,760. Higher rates are available for deposits of £40,000+ (which implies having contributed 8+ years due to the maximum annual deposits).
There are also regular saver ISA's available allowing deposits of £480 monthly (enough to make full use of your annual allowance) at a rate of 3%, or 4% with some local building societies. To get 3% interest in an Irish account, you'd need 4.48% before deduction of DIRT.
The introduction of such a scheme in Ireland could see Irish banks reduce the best buy regular savings rate from 3.5% to 2.345% with no impact to the customer.
The best buy current account rate is 3% for up to £20,000 with Santander or 5% for up to £2,500 with Nationwide - but with a 1 year limit before dropping to 1%. Santanders rate has no expiry date but requires a current account that costs £2 per month but offers cashback on household bills paid by direct debit (generally, the cashback wipes out the charge and, usually, more along with it).
Given these rates of 2.4% and 4% after 20% tax, the current accounts are paying more than most ISA's. However, people will not withdraw from their ISA's to fund current accounts because they lose the tax-free status for this year and all future years. In general, they use these accounts for new savings only.
The best buy variable rate instant access ISA rates are 2.5% and your annual Cash ISA allowance is £5,760. Higher rates are available for deposits of £40,000+ (which implies having contributed 8+ years due to the maximum annual deposits).
There are also regular saver ISA's available allowing deposits of £480 monthly (enough to make full use of your annual allowance) at a rate of 3%, or 4% with some local building societies. To get 3% interest in an Irish account, you'd need 4.48% before deduction of DIRT.
The introduction of such a scheme in Ireland could see Irish banks reduce the best buy regular savings rate from 3.5% to 2.345% with no impact to the customer.
Brendan Burgess
Founder
- Messages
- 52,183
It makes comparisons very difficult.
If I wanted to deposit £100,000 what interest rate would I get?
What tax would be charged on it? Does it depend on my other income or is similar to DIRT?
What is the average variable mortgage rate? Do you get tax relief on mortgage interest?
If I wanted to deposit £100,000 what interest rate would I get?
What tax would be charged on it? Does it depend on my other income or is similar to DIRT?
What is the average variable mortgage rate? Do you get tax relief on mortgage interest?
marathonic
Registered User
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- 122
I agree that comparisons are difficult.
The tax rate on interest is at your marginal rate but there is no tax on interest on deposits held within a Cash ISA - to which you can contribute a maximum of £5,760 (for 2013/4) per year.
So you get 2.5% tax-free on smaller annual investments within an ISA but, for £100,000, you'd want to be looking at fixed rates of:
1 year: 2.15%
2 year: 2.45%
3 year: 2.51%
5 year: 3%
All are subject to 20% tax - or 40% if you're a higher rate tax-payer.
Mortgages are even more difficult given the range of providers, the rates themselves and the WIDELY varying arrangement fees. It's impossible to compare mortgages without taking the amount to be borrowed into consideration (do I go for a high fee and a low rate or high rate and low fee).
To give you an example of the products I've taken over the past 6 months:
The Ulster Bank mortgage was at 75% LTV and the rate on that for new applicants is now 3.3% - or 2.8% at 60% LTV.
As you can see, these figures definately wouldn't stack up for a new mutual society. I'm better saving in my 3% regular saver ISA than overpaying my mortgage as it pays 3% tax-free versus the 2.9% rate on my mortgage.
I believe this is all down to Funding for Lending - as the UK can print their own money and didn't give up their control over their currency in joining the euro, the banks can all lend dirt cheap money from the government and have little reliance on deposits. That's the reason a 5-year fixed rate deposit outside an ISA is as low as 3%.
The tax rate on interest is at your marginal rate but there is no tax on interest on deposits held within a Cash ISA - to which you can contribute a maximum of £5,760 (for 2013/4) per year.
So you get 2.5% tax-free on smaller annual investments within an ISA but, for £100,000, you'd want to be looking at fixed rates of:
1 year: 2.15%
2 year: 2.45%
3 year: 2.51%
5 year: 3%
All are subject to 20% tax - or 40% if you're a higher rate tax-payer.
Mortgages are even more difficult given the range of providers, the rates themselves and the WIDELY varying arrangement fees. It's impossible to compare mortgages without taking the amount to be borrowed into consideration (do I go for a high fee and a low rate or high rate and low fee).
To give you an example of the products I've taken over the past 6 months:
- 2.3% Tax-Free ISA Deposit with Tesco Bank at 2.3% using last years ISA allowance. The deposit remains there earning 2.3% tax-free
- 3% Regular Savings ISA using this years ISA allowance to which I'm contributing £480 per month
- Ulster Bank Mortgage with no arrangement fees at a 2-year discounted rate of 2.9%, reverting to 4% SVR
The Ulster Bank mortgage was at 75% LTV and the rate on that for new applicants is now 3.3% - or 2.8% at 60% LTV.
As you can see, these figures definately wouldn't stack up for a new mutual society. I'm better saving in my 3% regular saver ISA than overpaying my mortgage as it pays 3% tax-free versus the 2.9% rate on my mortgage.
I believe this is all down to Funding for Lending - as the UK can print their own money and didn't give up their control over their currency in joining the euro, the banks can all lend dirt cheap money from the government and have little reliance on deposits. That's the reason a 5-year fixed rate deposit outside an ISA is as low as 3%.