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    • Crookesmoor
    • By Crookesmoor 15th Sep 17, 10:19 AM
    • 3Posts
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    Crookesmoor
    Better than an ISA?
    • #1
    • 15th Sep 17, 10:19 AM
    Better than an ISA? 15th Sep 17 at 10:19 AM
    Just checking if I've had a genuine 'Martin Lewis' moment or just a dumb idea that doesn't work...

    It seems to me that there are better interest rates outside of the ISA accounts on offer and since, within limits, we don't pay tax on normal savings accounts why not go for the best interest rate for the now and then, just before the end of the tax year, move it all into an ISA so that you get it locked in to your other ISA'd savings.

    This means that in the future you will have money that is guaranteed safe from taxation but you might earn an extra .25% (big deal ;-)) interest for this year.
Page 1
    • badger09
    • By badger09 15th Sep 17, 10:28 AM
    • 5,396 Posts
    • 4,636 Thanks
    badger09
    • #2
    • 15th Sep 17, 10:28 AM
    • #2
    • 15th Sep 17, 10:28 AM
    Just checking if I've had a genuine 'Martin Lewis' moment or just a dumb idea that doesn't work...

    It seems to me that there are better interest rates outside of the ISA accounts on offer and since, within limits, we don't pay tax on normal savings accounts why not go for the best interest rate for the now and then, just before the end of the tax year, move it all into an ISA so that you get it locked in to your other ISA'd savings.

    This means that in the future you will have money that is guaranteed safe from taxation but you might earn an extra .25% (big deal ;-)) interest for this year.
    Originally posted by Crookesmoor
    Many of us came to this conclusion some time ago, even before the introduction of the Personal Savings Allowance

    Why settle for an extra 0.25% though, when you can achieve up to 5%
    • Alexland
    • By Alexland 15th Sep 17, 9:07 PM
    • 668 Posts
    • 416 Thanks
    Alexland
    • #3
    • 15th Sep 17, 9:07 PM
    • #3
    • 15th Sep 17, 9:07 PM
    Even money in an ISA wrapper is not guaranteed free of tax as the government might change their tax efficient status in future. Although the Cash ISA market is pretty dead the other ISAs still have significant advantages.
    • bowlhead99
    • By bowlhead99 16th Sep 17, 1:59 AM
    • 6,886 Posts
    • 12,397 Thanks
    bowlhead99
    • #4
    • 16th Sep 17, 1:59 AM
    • #4
    • 16th Sep 17, 1:59 AM
    Even money in an ISA wrapper is not guaranteed free of tax as the government might change their tax efficient status in future.
    Originally posted by Alexland
    They might. People sceptical of the governments of the day have been saying, "it's a gamble, the govt will roll back the tax benefits and make all your income taxable, mark my words" ever since PEPs were introduced thirty years ago, then when Tessas were introduced 27 years ago, then when ISAs superseded them both 18 years ago.

    But the reality is that pretty much every year they have allowed larger and larger annual contribution limits and from time to time they have become more and more flexible and we are no closer to having them closed or capped or neutered than we were three decades ago.

    To go off topic, there's is a similar effect with personal pensions where someone will have heard from someone at work or down the pub that someone they knew got screwed with some sort of pension so you can't trust them as you'll lose everything or get screwed by government. When in reality recent governments have massively improved the flexibility on how they can be accessed, have not removed the tax free lump sum as feared, have not removed higher rate tax relief on contributions as feared, and all they did negative was impose a cap on annual or lifetime limits for the wealthiest few percent of society, while telling you that you need to be age 55+ to get at your old age pension. Only something that affects a tiny fraction of investors.

    It certainly makes sense to consider "political risk" when looking at savings or investment options, but don't get too hung up on it.

    Although the Cash ISA market is pretty dead the other ISAs still have significant advantages.
    It used to be that cash ISAs could only hold a £3k contribution and if you were lucky, maybe a transfer in of the last year's £3k or the year's before that you had set up elsewhere. So, it was an easy product for a bank to offer as a sky high interest rate loss-leader.

    Unfortunately for the banks, these days the ISAs have much lower HMRC restrictions, they've got so flexible that anyone offering an ISA with no restriction on "transfers in" could potentially have to pay that interest rate on a balance transfer of a million quid or more for legacy ISA products. Even if the banks restrict it to current year contributions ("new money"), someone can stuff it with £20k, which is only a few thousand short of the national median post-tax income of an entire household - or £40k for a couple, which is well above what the typical couple would save in a year.

    So, banks would be crazy to use ISAs as loss leaders now and pay super-premium rates on top of the market rate. Instead, while base interest rates are basically nothing, they offer premium rates of 4-20x the base interest rate on the first £x deposited with them in a current account if you promise to start using it like one of your "main accounts", maybe have direct debits going through it etc. Or set up a regular savings account with nominal monthly contributions at an attractive rate, serving as the aforementioned "loss leader", and often only available if you have one of those "main current accounts" that give them loads of cross-selling opportunities.

    So, if you don't need income tax protection on your interest income being earned (either because you have a decent personal savings allowance, or you just aren't earning very much income on the ISA), there are loads of alternative non-ISA options to explore. Or of course - as Alexland alludes to - the other ISA types such as S&S ISA, IF ISA, or LISA could be quite a bit more lucrative to build wealth for the longer term, if you aren't fazed by investment risk (or are, but can educate yourself out of that affliction )
    • Neil Jones
    • By Neil Jones 16th Sep 17, 12:23 PM
    • 939 Posts
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    Neil Jones
    • #5
    • 16th Sep 17, 12:23 PM
    • #5
    • 16th Sep 17, 12:23 PM
    What may be more plausible to consider in the future is if the PSA figure of £1k doesn't rise in future years. As and when savings interest rates begin to come back up to levels of 3%+ across the board in non-ISA savings, that will have the effect of pushing more people over that threshold if it doesn't increase, say in the way the ISA limits have. £1k looks big now but at 3% on everything it'll soon get eaten up.

    These things tend to go in circles though and I dare say ISAs will come back into favour again like a phoenix rising from the ashes when we come back to an era of available 5% rates on much larger sums than what we have at the moment.

    It's pretty much considered political suicide to scrap what is now the ISA setup and situation without replacing it with something better or bolting something else onto them (such as the new range of ISAs out there). The ISA was a brilliant idea when it launched in the pre PSA days and is still in principle a good idea now - its just resting IMO.

    That being said there may (unlikely but remotely potentially) come a day when there is no savings interest payable full stop. ISAs may be ended at that time as there wouldn't be any point having a specific interest tax-free product when nobody will ever pay tax outside it anyway although anomalies like that wouldn't be unusual for government products anyway
    • colsten
    • By colsten 17th Sep 17, 1:48 PM
    • 8,788 Posts
    • 7,466 Thanks
    colsten
    • #6
    • 17th Sep 17, 1:48 PM
    • #6
    • 17th Sep 17, 1:48 PM
    For any cash savings below the annual ISA limit (now £20k), various current and savings accounts have been a better option than a cash ISA for a few years now.

    Unless you know you will be busting the annual ISA limit, there's no point moving the money into an ISA before the end of the financial year. If you do have the need for it, though, investigate a flexible ISA as that will allow you to take the money out again into better paying accounts, and then deposit the same amount back into the ISA, on top of your new annual allowance.
    • colsten
    • By colsten 17th Sep 17, 1:55 PM
    • 8,788 Posts
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    colsten
    • #7
    • 17th Sep 17, 1:55 PM
    • #7
    • 17th Sep 17, 1:55 PM
    Nobody has mentioned the LISA in detail yet - - for those eligible for one of these, and looking to use the money for a deposit, putting as much as possible into a LISA is pretty much a no-brainer. The same isn't necessarily true if the purpose of the saving is building a nest egg for retirement. Putting the money into a pension might make more sense then.
    • Keep pedalling
    • By Keep pedalling 17th Sep 17, 2:06 PM
    • 3,935 Posts
    • 4,290 Thanks
    Keep pedalling
    • #8
    • 17th Sep 17, 2:06 PM
    • #8
    • 17th Sep 17, 2:06 PM
    Even money in an ISA wrapper is not guaranteed free of tax as the government might change their tax efficient status in future. Although the Cash ISA market is pretty dead the other ISAs still have significant advantages.
    Originally posted by Alexland
    Cash ISAs should be dead, but the money going into them still outstrips the money going into S&Ss ISAs by a long way.

    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/640743/Full_Statistics_Release_August_2017.pdf
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