Help to Buy ISA - is it worth as an alternative to a regular ISA

littly_kitty · 7 February 2016 at 5:06PM

The Halifax Help to Buy ISA offers 4% interest, which is way more than a regular ISA. At first glance, it seems better than a regular ISA, even for people who aren't planning on buying a house (of course, they must have never owned a house to qualify).

However, I'm not sure if that's the case.

1) As I understand it, you can transfer your previous cash ISAs. I've been using an ISA since 2006, so I've got quite a lot saved up!

However, it seems you only get 4% interest on the first £1600, so that's less interest compared to a regular ISA (which have lower rates but give you interest on the full ISA amount).

2) You can only pay in £200 a month. So you can't make use of 2016 £15,000 tax free allowance.

Is my thinking correct?
It seems to be made for people who don't have large savings and so want to start saving (which is fair enough!). That's not my situation, as I already having a lot saved up from using the ISA since 2006.

I just want to double check, just in case my thinking is wrong and I am missing out on potential benefits..

jimjames · 7 February 2016 at 5:48PM

Yes you are correct.

You can only pay in up to the limits which are lower than the total.

However for pretty much anyone planning on buying a house (and most of those that aren't too) a cash ISA is completely pointless.

It's far better to 5% and 6% and pay tax than get 1% or less tax free.

littly_kitty · 7 February 2016 at 5:58PM

jimjames wrote: »

However for pretty much anyone planning on buying a house (and most of those that aren't too) a cash ISA is completely pointless.

It's far better to 5% and 6% and pay tax than get 1% or less tax free.

5% to 6%? Are you talking about current accounts like Lloyds & TSB? Those only pay out on balances of £2K - £5K max, so if you have any more (e.g. like £10K+), then they are no good.

Also what about compounding? For example, now the Cash ISA rate is very poor (and has been failing for the last 8 years). But one would assume that it would pick up eventually (although possibly not for another 10 years), so if you have been paying into the limit each year all that time, you would get a big chunk of interest!

Archi_Bald · 7 February 2016 at 6:06PM

littly_kitty wrote: »

T

1) As I understand it, you can transfer your previous cash ISAs. I've been using an ISA since 2006, so I've got quite a lot saved up!

However, it seems you only get 4% interest on the first £1600, so that's less interest compared to a regular ISA (which have lower rates but give you interest on the full ISA amount).

This is not correct. You can only transfer in £1,200 in the first month, and £200 in subsequent months, from an existing ISA. Although allowed, the paperwork involved in transferring in £200 each month would be quite tedious, and consequently it is unlikely that people will do much of that.

There is nothing that says you only get interest on the first £1,600.

Archi_Bald · 7 February 2016 at 6:10PM

littly_kitty wrote: »

5% to 6%? Are you talking about current accounts like Lloyds & TSB? Those only pay out on balances of £2K - £5K max, so if you have any more (e.g. like £10K+), then they are no good.

when I last checked, you could get at least £50,000 into non-ISA accounts with good rates.

littly_kitty wrote: »

Also what about compounding?

Compouding can be achieved in non-ISA accounts, too. All you have to do is make sure your interest is in an interest-paying account.

littly_kitty · 7 February 2016 at 6:25PM

Archi_Bald wrote: »

There is nothing that says you only get interest on the first £1,600.

But if you transfer an old ISA, then you wouldn't get interest on the past years ISA. Is that correct?

when I last checked, you could get at least £50,000 into non-ISA accounts with good rates.

The best account I found for £50K was Tesco Bank, which offers 1.5%, which is a tiny bit less than the 1.51% virgin offers for their ISA.

Santander offers 3%, but it's capped at £20K, and seems to have the largest max amount of the higher interest accounts.

I'd love to know if there are any accounts beating 1.5% (and allow £50Kish. Even £30K+ plus).

(All the ones over 1.5% on here require your money to be fixed for a certain amount of time, so it's not easy access).

jimjames · 7 February 2016 at 6:45PM

littly_kitty wrote: »

But if you transfer an old ISA, then you wouldn't get interest on the past years ISA. Is that correct?

The best account I found for £50K was Tesco Bank, which offers 1.5%, which is a tiny bit less than the 1.51% virgin offers for their ISA.

Santander offers 3%, but it's capped at £20K, and seems to have the largest max amount of the higher interest accounts.

I'd love to know if there are any accounts beating 1.5% (and allow £50Kish. Even £30K+ plus).

(All the ones over 1.5% on here require your money to be fixed for a certain amount of time, so it's not easy access).

If you want to find obstacles to getting 5% and 6% then you can. A lot of us find ways round it and are able to get those rates. Do you really need just one account for £50k?

badger09 · 7 February 2016 at 6:46PM

littly_kitty wrote: »

But if you transfer an old ISA, then you wouldn't get interest on the past years ISA. Is that correct?

The best account I found for £50K was Tesco Bank, which offers 1.5%, which is a tiny bit less than the 1.51% virgin offers for their ISA.

Santander offers 3%, but it's capped at £20K, and seems to have the largest max amount of the higher interest accounts.

I'd love to know if there are any accounts beating 1.5% (and allow £50Kish. Even £30K+ plus).

(All the ones over 1.5% on here require your money to be fixed for a certain amount of time, so it's not easy access).

There isn't one single account. You need several current accounts and regular savers, paying up 6%.

You also need to be organised if you are going to play the multiple current accounts game - but it can be very lucrative;)

littly_kitty · 7 February 2016 at 7:22PM

I suppose a lot of depends on how much faith you have on the ISA going back to it's glory days offering high interest.

If you have faith, then an ISA probably is still better. Martin provides some really good arguments here.

For most people, setting up standing orders to move money around and exploit the 5% to 6% offered by current accounts probably is better.

jimjames · 7 February 2016 at 8:40PM

If you're saving for a property and spending that money in the next few years then a non HTB cash ISA is pointless because you can get far better rates on your deposit elsewhere. Long term tax status is irrelevant because you are spending the money.

If you are looking to build up a nest egg for the long term then again cash ISAs are pointless because it's normally better to invest in S&S for the long term as they are more likely to beat inflation. S&S ISAs are definitely worthwhile.

For the average person with £2000 or less of savings there is zero point in a cash ISA unless you have terrible credit rating and cannot open a current account.

If you think interest rates are rising soon I think you will be very sadly disappointed. So overall you will see that I completely disagree with Martin and think it's a shame that so many people are obsessed with saving tax at the expense of getting the best return.

JWalker1995 · 7 February 2016 at 10:40PM

I think the fact the government is giving you 25% of your money is a big booster to a HTB ISA. Dont see many current accounts offering 25% interest

Help to Buy ISA - is it worth as an alternative to a regular ISA

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