Best Savings Rates
Advice, help, information and guidance on savings, interest rates, and savings tax advice.

Savings Interest Rates - Tax Free Saving

best savings ratesWhatever the benefits of compound interest combined with the best savings rates may be, we always have to consider the tax effect on our savings, which is corrosive, particularly for higher rate tax payer, in order to find the best savings interest rates. Whilst most governments around the world profess to implement tax and fiscal policies that encourage us to save, when we actually look at the tax free savings options available, whether in the UK, US, Canada or elsewhere, the amounts we are allowed to save tax free, are pitifully small. If any government truly wanted us to save, then offering significant tax incentives would be one way - sadly they all seem to have the same view that this would not only damage their tax receipts, but also allow us to retire earlier, reducing tax income still further! ( end of political statement!!) - keeping us employed for as long as possible is their ultimate goal!

Savings Rates - Tax and Savings

With any savings, anywhere in the world, the first place to look is for the tax free options. After all, why pay tax if you don't have to - so before looking for the best savings rates start by looking at the tax free opportunities offered by your very generous Government. Here I have broken it down into country by country starting with the UK, then the US, and finally Canada.

Highest Interest Rates - Tax Free Savings UK

In the UK we are relatively better off than most when it comes to saving tax free. As of 2008, we can save up to £93,600 tax free, made up of the following products. All are risk free as they are backed by the Government as National Savings:

Direct or Cash ISA - maximum allowable £3,600 per tax year. For an explanation of the best isa please follow the link.

Premium bonds - maximum of £30,000 - all prizes are tax free.

Index Linked Savings Certificates - £15,000 in each of 17th and 44th issues.

Fixed Interest Savings Certificates - £15,000 in each of 42nd and 91st issues.

Best Savings Interest - Tax Free Savings US

In the US, tax free savings are more difficult to find, and it is only relatively recently under the George Bush administration that new tax free savings plans have been suggested to replace the plethora of 401k, 457's, SEP's, IRA's and many other plans. These proposals are still going through Congress. The principle options are as follows :

401k - provided by employers of private companies to allow employees to save for retirement - generally interest and savings are free of federal and state taxes. These are extremely complicated plans and the employer has control over the investments. Payments in, reduce your tax liability so if you earned $50,000, and contributed $1,000, then your tax liability would only be $49,000. Some companies offer % contributions to match the employee's amounts. The bad news however, is that tax is payable when you withdraw sums from the funds. These plans are commonly called pre-tax dollar growth - currently $16,000 pre tax dollars can be invested per year.

ROTH 401k - a post tax dollars saving -  $15,000 post tax dollars can be invested per year.

ROTH IRA - post tax dollars saving - all withdrawals are tax free and the maximum investment amount currently 2008 is $5,000

Best Rate Savings - Tax Free Savings Canada

The Canadian Government recently announced a new type of tax free savings account ( TFSA) which is similar to the ROTH IRA outlined above. The current details are as follows ( but not due for release until early 2009) along with other tax free savings:

TFSA - A type of account where you make contributions but don’t get any tax refund. While the money is in the account there are no taxes applied to any kind of earnings such as interest, dividends, capitals gains. Any withdrawals from the account are not taxable and won’t count against any government programs i.e. GIS, OAS. The maximum amount you will be able to contribute is $5,000 per year. Contributions are made with after tax dollars, but withdrawals are tax free.

Now before we look at the best places for savings rates, and some of the savings products available in the market today, let's consider the issue of risk and reward. In other words, how safe is your money?

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