Proposed 'Everything ISA'

Alexland · 7 March 2018 at 8:30PM

Interesting proposal:

https://www.moneywise.co.uk/news/2018-03-07/complex-isa-regime-should-be-scrapped-favour-everything-isa

Everything ISA opened at birth

Any savings account can be linked into the your ISA wrapper if desired

No annual contribution limit but a £1m ISA lifetime allowance

Not clear how the HTB or LISA bonuses would be earned

Alex

Plus · 8 March 2018 at 1:04PM

Something that would be useful is to get rid of the idea of ISA transfers. Abolish the bureaucratic form-filling exercise, and make ISA transfers between two ISA-enabled accounts the same as any other bank transfer. I suspect this is the reason why currently ISA accounts don't pay very well, because they have to have to staff transfer departments who push cheques around and chase providers when they lose them. Meanwhile, outside the ISA bubble, bank transfers are pretty much instant.

dunstonh · 8 March 2018 at 1:49PM

and make ISA transfers between two ISA-enabled accounts the same as any other bank transfer.

You do need to remember that ISA doesnt just cover bank accounts. You are looking at funds, shares etc.

I suspect this is the reason why currently ISA accounts don't pay very well, because they have to have to staff transfer departments who push cheques around and chase providers when they lose them.

That is the case. Originally, the cash ISA was meant to be sold through supermarket checkouts with people rounding the bill and putting the excess into their iSA. The banks were not involved directly. However, the technology wasnt ready and the supermarkets were not exactly warming to the idea and rather than back down, Gordon Brown approached the banks to see if they would take it on. However, they refused until the ISA contribution was increased to make it viable. The increased running costs of an ISA have reduced over the years but small value funds still make a loss and are cross-subsidised by larger savers but given the ISA limits and the fact that you are more likely to use S&S ISAs when its large, there are not as many large cash ISAs. to cover the cross-subsidy. So, the interest rate is lowered accordingly.

Plus · 8 March 2018 at 2:31PM

dunstonh wrote: »

You do need to remember that ISA doesnt just cover bank accounts. You are looking at funds, shares etc.

Indeed, but ISAs all boil down to cash eventually. You should be able to do a share sale, cash transfer and repurchase in a new ISA on more-or-less the same day (give or take settlement times), which would reduce (but not eliminate) the need for lengthly transfer processes. At the very least there should be no fees for near-instant transfers of cash held in a S&S or IF ISA.

Transferring in specie is a harder problem, I grant you.

That is the case. Originally, the cash ISA was meant to be sold through supermarket checkouts with people rounding the bill and putting the excess into their iSA. The banks were not involved directly. However, the technology wasnt ready and the supermarkets were not exactly warming to the idea and rather than back down, Gordon Brown approached the banks to see if they would take it on. However, they refused until the ISA contribution was increased to make it viable. The increased running costs of an ISA have reduced over the years but small value funds still make a loss and are cross-subsidised by larger savers but given the ISA limits and the fact that you are more likely to use S&S ISAs when its large, there are not as many large cash ISAs. to cover the cross-subsidy. So, the interest rate is lowered accordingly.

This seems clear with the HTB and LISA, which are complex and where the limits are sufficiently low that they're evidently being sold as loss-leaders for mortgages or other investment products. And the attraction of cash ISAs is much reduced given the personal savings allowance.

Proposed 'Everything ISA'

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