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Where to put 5K over 6months for the best return

Where to put 5K over 6months for the best return

Category: Savings

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

"Can I get a guaranteed return on £5,000 for six months? People want to borrow; I want to deposit and get some interest: if borrowers pay 7%, I want 3%!"

Chris, Harpenden.

Earning 3.00% guaranteed in six months is a tall order for a savings account, over a year, yes, over six months, currently it's just not possible. However, there are several options that pay 3.00% or more over a year - so let's explore what's out there...

What we're looking for

Because you need a guaranteed return on your money this also leads us to the assumption that you also don't want to risk your money - this means we can rule out the investment route as, setting aside the risk of you losing money, you would in all likelihood, need to be prepared to commit your money longer than six months.

So that leaves savings accounts...

Before we can look at the options open to you, we need to consider what it is that we are looking for:

  • You are looking for an account or product where you can deposit £5,000 and have access to it in six months' time.
  • You want to earn interest of 3.00% on your £5,000 in this period - that's £150. We'll have to assume that you mean before tax.

Unfortunately, in the present climate, earning 3% interest in six months on a savings account just isn't going to happen. When trying to find a home for your savings it's important to remember that gross and AER rates are annual interest rates; so even a six month fixed rate bond paying 3.00% gross, is actually only paying you 1.50%.

So with a savings account you're going to need to compromise: you either need to keep your money in longer, or accept that you won't earn 3% in six months.

Savings account options

The first question is: have you used your cash ISA allowance? If you haven't, do you intend to use this separately to the £5,000 you wish to save for six months? If you weren't going to use your allowance this tax year, then saving into a cash ISA will be your best bet of earning the most interest in six months...

AER Term / Notice Estimated return over six months
(on £5,000)
Estimated return over one year
(on £5,000)
AA Instant Access ISA 3.35% No Notice £84.44 £167.96
Santander Flexible ISA Issue 3 3.30% Instant Access £83.44 £166.40
Nationwide BS ISA 3.10% No Notice £78.14 £156.26
Halifax ISA Direct Reward 3.00% No Notice £75.62 £151.19
Source: Moneyfacts.co.uk Compiled 30/03/2011

Remember that, unlike savings accounts, all interest earned on your cash ISA is yours - you don't lose any to the taxman. If you want to go this route, hurry, you've only got until 5 April to open your cash ISA (for the 2010-11 tax year) - it's best to do this even earlier as if the provider you go for is delayed in setting up your account, it would count as next year's contribution!

However, if you have used, or plan to use your cash ISA allowance, let's look at some of the higher paying non-ISA savings accounts.

AER Term / Notice Estimated return over six months
(on £5,000)
Estimated return over one year
(on £5,000)
Nationwide BS MySave Online Plus 3.05% None £75.87 £150.91
FirstSave 6 Month Fixed Rate Bond 1st Issue 3.02% 6 Month Bond £75.62 N/A
Manchester BS Premier Notice Issue 24 3.01% 60 Day Notice £75.87 £151.70
Santander eSaver Issue 3 3.00% None £75.62 £150.41
Source: Moneyfacts.co.uk Compiled 30/03/2011

* All estimated returns don't take into account any tax you'll have to pay.

Remember that any interest earned on a savings account will attract income tax at your marginal rate (so 20% if you pay basic rate, 40% if you pay higher rate tax), so your actual returns will be a lot lower.

Find the best savings rates for you - Compare savings accounts

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.