Used up Cash ISA limit, now what?

Stu666 · 7 November 2010 at 9:04AM

My wife and I are in our late twenties and saving for our first home (currently renting). We are aiming to save about £20,000 for a mortgage deposit.

At the moment we are able to save £1,000 per month.

We each have a cash ISA and are rapidly approaching the joint £10,200 limit that can be saved tax-free per year.

I am not particularly savvy when it comes to money, so my question is: what should we do once we hit the limit?

I have heard about stocks and shares ISAs, but is there an element of risk with these?

I also understand it's probably not worth bothering with premium bonds?

opinions4u · 7 November 2010 at 9:23AM

I have heard about stocks and shares ISAs, but is there an element of risk with these?

If you're thinking less than 5 years, I wouldn't even go there.

I also understand it's probably not worth bothering with premium bonds?

If you are a 50% taxpayer, they may have a place.

Take a look at sites like www.moneyfacts.co.uk/savings and specifically regular savings. Two accounts that leap to mind on rate are First Direct (8% with little flexibility) and Lloyds TSB (5%, brilliant flexibility). Make sure you have an easy access home for your money too. The Post Office, AA, ING, Tesco, Egg etc all pay over 2.5%.

I am not particularly savvy when it comes to money, so my question is: what should we do once we hit the limit?

Think about next year's limit (from 6th April 2011) and how you can best exploit that!

Cautious_Investor_3 · 7 November 2010 at 9:56AM

Hi

If you continue saving at the rate of £1,000 per month you will hit your £20k target pretty quickly, therefore:

1. Use your ISA allowance up to the max possible and again in the new tax year

2. As another poster has said use some of the excellent regular saver accounts to get a better rate of interest

3. Don't use an equity ISA, these can fall in value and it sounds as though you will use the money in the relatively short term

4. Don't worry too much about it as it sounds as though you will be spending the money on a house deposit within the next year!

By the way, what tax rates do you pay?

The Cautious Investor

Stu666 · 7 November 2010 at 11:00AM

Thanks for the useful replies.

We will probably hit the limit by January next year, so thinking about it there isn't all that long to wait until April for the new ISA allowance.

CI, I'm not sure what tax rates I pay, but I am self-employed.

Cautious_Investor_3 · 7 November 2010 at 11:11AM

Stu666 wrote: »

CI, I'm not sure what tax rates I pay, but I am self-employed.

What is your taxable profit?

How much does your spouse earn?

psychic_teabag · 7 November 2010 at 12:48PM

Think very carefully before taking money out of a cash ISA, since you can't replace it, but...

If one of you pays at basic tax rate (or less), the 4% interest from Lloyds vantage is probably higher than you can get on an ISA, despite being taxable. (The best instant-access ISA I'm aware of is 3%) But only if you stay within the 5k-7k window. (And push 1k in and out per month, but that's easy enough.)

You have slightly less than 10k now. You could move 7k to a vantage, then continue adding to your ISA. When ISA reaches 3k, can open a second vantage and balance to put 5k in each. Over 4 months you can add 2k to each, giving 2 x 7k. Then on the 5th month, you can open a 3rd account and rebalance to give 3 x 5k. Now you have room for another 6k, taking you to your 20k goal.

In addition to all that, you can open some halifax reward current accounts - I think it's one each and one joint, but you'll have to check. Then each month move the 1k through all the accounts before putting it in its final destination, giving an extra £5/account/month pocket money (net).

Obviously, if Lloyds drops the rate, or lowers the number of accounts per person, the numbers all get a bit screwed up :-(

opinions4u has already mentioned the Lloyds monthly saver which gives an even higher rate for some of your money - you can presumably have one of these each. That probably pays higher than you can get with an ISA even if you pay higher-rate tax.

psychic_teabag · 7 November 2010 at 2:07PM

First flaw in the above : need to add 1k to go from 2x7k to 3x5k, but if you are putting money into monthly savings accounts, you don't have 1k to add in one go. Lloyds saver does allow penalty-free withdrawls from reg saver, so could add some from that pot to make it up to 1k, but now you're losing out on 5% interest on that piece for the next N months to get 4% on a slightly bigger sum. Would need to do some sums to decide exactly how best to handle that, but differences are probably a bit marginal anyway. Can easily just stash the difference in an instant-access ISA for a month, and defer opening the 3rd vantage until you have 1k.

Santander have a "first home saver" allowing up to 5k initial deposit + £100 to £300 per month, giving 5%. Perhaps you can have one of these each - worth investigating, since usually regular savers don't allow an initial deposit. I don't think there's any requirement to actually take out a mortgage with santander at the end of it all, but obviously that's for you to check out. (Also, some would urge caution in having any dealings with santander...)

Hmm - if you had one of these each, and a lloyds / first-direct regular saver each, that's actually all your money accounted for anyway, so don't need to bother with the lloyds vantage at all. (But you may as well still go for the halifax reward current accounts.) But the money is less accessible, so harder to dip into in an emergency.

Baldur · 7 November 2010 at 3:39PM

psychic_teabag wrote: »

First flaw in the above : need to add 1k to go from 2x7k to 3x5k, but if you are putting money into monthly savings accounts, you don't have 1k to add in one go.

The £1k minimum funding can be carried out across all accounts within minutes. It takes as long as is required to log on to LTSB's internet banking, transferring £1k from one of the Vantage accounts (after transferring it internally between the two or more Vantage accounts) by faster payments to Halifax, logging off then logging on to Halifax internet banking, internally transferring the £1k across the 3 accounts, then sending it back out to LTSB by faster payments.

All carried out in a few minutes, with the daily balance of the Vantage account unaffected and the minimum funding requirement of the Reward accounts satisfied.

psychic_teabag · 7 November 2010 at 3:45PM

Sorry, perhaps I didn't make myself clear. I didn't mean the 1k needed for the monthly funding. I meant the 1k needed to transition from a balance of 14k split across 2 accounts to 15k split across 3 accounts (keeping all accounts inside the 5-7k window) It's fine if OP adds the whole 1k per month to the set of vantage accounts, but if they set some of that aside elsewhere (eg monthly savers) there's a bit of a shortfall somewhere.

Used up Cash ISA limit, now what?

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