Good mid-term deposits

[shirepro]

Each year I sit on corporation tax and VAT between returns thinking they must be able to be popped somewhere safe and earn a few bob in interest. At the moment I have next years corporation tax on a term investment at the bank but frankly the interest rates are poor. Any ideas of where a company can put money for up to 12 months at a time to get the best rates without risk.

[thepeoplespal]

shirepro said:

Each year I sit on corporation tax and VAT between returns thinking they must be able to be popped somewhere safe and earn a few bob in interest. At the moment I have next years corporation tax on a term investment at the bank but frankly the interest rates are poor. Any ideas of where a company can put money for up to 12 months at a time to get the best rates without risk.

Not sure it is totally appropriate as its more of a personal product, but providing you take proper professional advice with people with the right qualifications I'd recommend you look into a bank account mortgage, if you already have a mortgage.

Your money earns the same rate of interest as your mortgage theoretically and dramatically reduces the number of years your mortgage runs for if you choose to keep the money in the account. i.e. £100,000 - 5% mortgage running for 25 years at £585 a month, putting in £8k at the start would cut your payments by 43 months.

If you are already saving your full Cash ISA amount say and wanted to save more, you might get 5% Gross for regular savings, of course you'll be taxed at 40% as a higher rate tax payer on any savings, so 5% suddenly becomes 3%net.

Every penny in your mortgage savings account will earn you 5% rather than 3% as you don't pay tax on an outstanding mortgage loan.

As a higher rate tax payer you are getting hit with 40% tax so in order to get an effective rate of 5%net any savings would need to earn 7.15% Gross. 7.15% gross with no penalties for withdrawal or barriers to putting the money back in your account is pretty amazing by todays standards.

[shirepro]

Unfortunately as a limited company the money isn't ours to do with as we please directly. If we tke it out to offset the mortage I think it would be treated as a directors loan and interest would be payable, but probably not at the 5.25% of a mortgage, so possibly a small margin there. We can get 4% at the bank.

[thepeoplespal]

shirepro said:

Unfortunately as a limited company the money isn't ours to do with as we please directly. If we tke it out to offset the mortage I think it would be treated as a directors loan and interest would be payable, but probably not at the 5.25% of a mortgage, so possibly a small margin there. We can get 4% at the bank.

I know that a newspaper at the weekend (think Sunday Times) was saying that the return for a 40% taxpayer was 8.15% on a 5% mortgage, but they didn't say how it was calculated.

I've a mate in a similar situation LTD co. who I think keeps his VAT money etc in his mortgage account, I'll ask him how he copes with the directors loan sitation.