Charity Bank Tax Efficient Savings

The Charity Bank is offering upto 8.4% gross equivalent for basic rate taxpayers. Higher gross equivalents for higher rate taxpayers.

The return comes in 2 parts:

The first element is a tax break (introduced by the Government to encourage individuals to help charities) of 5% of the amount invested. This reduces the amount of tax you pay in the year - this is equivalent to 6.4% for br taxpayers.

The second part is interest offered by the Charity Bank itself and is upto a maximum of 2% pa. You can if you wish forego this interest and it will be donated to Charity instead.

This does appear a very good investment subject to the following:

Money is tied up for 5 years (Limited access after Year 3)

Part of the return comes about by a reduction of the amount of tax you pay. Eg Invest £10,000 and £500 is knocked off your tax bill for the 5 years. This cannot be refunded so watch out if you don't earn much and pay much tax or have volatile earnings.

The Charity Bank is likely to be higher risk than a mainstream bank. It is covered by the Deposit Compensation scheme so you need to watch the maximum amount you invest (£35k?)

The rate is fixed and will not increase if interest rates rise but there is a big premium over currently available savings rates.

It is only suitable for long term savers - not if you think you will need the deposit for a house or have no other funds.

Any comments particularly if I have missed any risks???

Just thought I would update this as it getting near to the end of the taxyear. This has been discussed on Martin Lewis' Money Saving Expert website and as such Charity bank may receive a deluge of interest (No Pun intended) - if you want to get in before the end of the tax year, it may make sense to apply sooner rather than later.

Invest £10k and knock £500 off your Tax bill for 2004/05. If you do your return ASAP after 6 April 2005 you will get the refund (Assuming all deducted at source etc) just a few weeks after investing the cash.

Summary of the Charity Bank Account - Similar to mine above really!! ,

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