Inflexibility of ISA's

trashcan_2

no removed

Baldur

The rates they are offering are so low in a lot of banks

Don't use those banks.

it is so much hassle to transfer them

What hassle? Completing a transfer form?

trashcan wrote: »

there are a lot more higher interest instant access accounts and also bonds for a year or so, that are easy to open and close and change....

They also attract 20% or 40% tax on any interest - the ongoing tax-free status of Cash ISAs more than makes up for the regulatory restrictions, in my opinion.

isofa

Complete agree with Baldur.

As soon as one of mine starts attracting a poor rate of interest I just transfer to a better provider, one that was getting 4% this year I've moved painlessly to a 6.25% cash ISA. I've got no other savings that are making 6.25% after tax (which would require a nearly 8% gross for a basic rate tax payer).

Opening them is easy, and getting the interest tax free more than makes up for it. If you are able to save the full allowance each year you'll have well over 40K in 10 years attracting tax free interest.

They are only not worth the "hassle" if you are a non-tax payer, and always going to remain a non-tax payer.

I don't have any cash ISA earning less than 6% at the moment.

natman

I actually agree with both the comments -
I know a lot of people on this forum, including me had a nightmare transferring to a better paying provider - took nearly three months, with my money being in limbo and no interest for 2 months, so if you factor in lost interest because of transferring its suprising how close you get to the other types of high interest paying accounts like KAUTHPING AND ICICI.
I agree they dont offer good flexibility, but why should they really you are getting it tax free.


On the other side I know that they are trying to speed up the ISA Transfer process, if this happens then ISA transfers will be a lot better for us all.
I think the most annoying issue with the transfer is a lot of money is moved around the 6th APRIL Mark which grinds everything down. Some peoples deals coming to an end, other people adding money to accounts.

I think it is worth the 'hassle' mainly due to compund tax free intrest, as indicated above you would need to have an account at around 8% to get a interest rate similar to a 6.25% ISA

Milarky

Baldur wrote: »

They also attract 20% or 40% tax on any interest - the ongoing tax-free status of Cash ISAs more than makes up for the regulatory restrictions, in my opinion.

But the rates themselves have traditionally been 'poor' compared to taxable equivalents. The OP is picking up on the fact that banks (etc) do play the field a bit here and offer low (in some cases pathethically low) rates given the 'long term' nature of the cash ISA itself and the fact that withdrawals are a low probability. So they are taking advantage and that knocks the shine off ISAs.

ISAs are 'great' for 40% taxpayers with savings - 'ok' for basic rate taxpayers and 'poor' or 'unsuitable' for non-taxpayers (as are the NS&I 'tax free' accounts including premium bonds - where the rates themselves already factor in the tax 'saving')

I hold on in the hope that deals will improve for ISAs (look at the Natwest offering) and people will be rewarded for the patience of setting aside cash in this fashion in the longer term (when the benefits will start to mount up)

There is nothing to stop a 'white knight' deposit taker setting up to offer better value. Meanwhile, even the banks are getting their stuff together with a 'code of practice' covering transfers - which are a mess at present.

dunstonh

I have never heard of ISAs as being inflexible. Indeed, they have often been referred to as complicated due to their flexibility.

Baldur

Milarky wrote: »

But the rates themselves have traditionally been 'poor' compared to taxable equivalents.

I can't recall any point since Cash ISAs replaced TESSAs when any equivalent taxable account offered a greater return (after tax) than my chosen Cash ISA product.

The OP is picking up on the fact that banks (etc) do play the field a bit here and offer low (in some cases pathethically low) rates given the 'long term' nature of the cash ISA itself and the fact that withdrawals are a low probability. So they are taking advantage and that knocks the shine off ISAs.

Agreed, the institutions have been taking advantage of 'saver inertia' and basic ignorance of the products on the part of depositors. Some ISA providers' low rates and/or machiavellian small print does not, however negate the basic premise behind the Cash ISA concept.

I hold on in the hope that deals will improve for ISAs (look at the Natwest offering)

Unfortunately, many of the above depositors will probably:

a)Read the headline rate, not realising that it only refers to balances in excess of £27,000.
b) Fail to note that the 2% bonus expires 12 months from receipt of the Cash ISA transfer request.
c) Fail to note that the rate is variable.

stevetodd

trashcan wrote: »

Are ISA's worth the bother.
I know they are but sometimes I wonder. The rates they are offering are so low in a lot of banks and it is so much hassle to transfer them.
On the other hand there are a lot more higher interest instant access accounts and also bonds for a year or so, that are easy to open and close and change, that it make me wonder about the inflexibility of ISA,s. What do you think?

Low? there are plenty offering around 6% and higher that's equivelant of 10% and over if you are a higher rate taxpayer and still 7.5% and over if you only pay basic rate.

I have been very lazy with my cash Isa's in the past and this is the first year that I have transferred them, it only took a quick call to get and a from which was very simple one page form with very few details to complete.

opinions4u

1) Cash ISAs are a good thing if you are prepared to chase the best rates and prepared to review what rate your getting and transfer to another provider when your rate becomes uncompetitive.

2) Cash ISAs are overly complex and the Government should make it easier to understand and also to change providers. Allowing withdrawals to be replaced within the same tax year would be a good start. Forcing a certificate to be issued on closure, which the customer can then walk round to a competitor with the cheque would improve the transfer process to a same day moment!

3) Stocks & Shares ISA allowances should be changed so that they do not, in any way, inhibit the Cash ISA limit. Better still, change the name to something completely different at the same time. Personal Equity Plan sounds innovative!

The_One_Who

I am currently a student so don't pay tax, but I still have an ISA. I see them as being longer term savings, not something that you just dip into now and again. In ten years time I (hopefully) will be a higher rate tax payer, and having quite a lot in tax free savings would be handy.

If you are willing to chase the best rates which isn't that hard since it's done here for you, and spend thirty seconds filling in a transfer form, then it's not hard at all. My transfer took a week from posting the form, I think.

I don't see them as being too complex, in fact, I'd say they were one of the simpler financial products.

dunstonh

3) Stocks & Shares ISA allowances should be changed so that they do not, in any way, inhibit the Cash ISA limit. Better still, change the name to something completely different at the same time. Personal Equity Plan sounds innovative!

Yes. Calling both ISA was a bad move. You knew where you were when you had PEP and TESSA (although cash ISA is a better overall product than TESSA and PEPs were truly tax free).

Drop the stocks and shares bit as well as that makes people think that you have to use stockmarket investments in the S&S ISA and that isnt the case.

2) Cash ISAs are overly complex and the Government should make it easier to understand and also to change providers. Allowing withdrawals to be replaced within the same tax year would be a good start. Forcing a certificate to be issued on closure, which the customer can then walk round to a competitor with the cheque would improve the transfer process to a same day moment!

Allowing withdrawals to be replaced would be very hard to monitor. Also, a certificate printed out by the bank on their laser printer would be very easy to copy. The current transfer system is fine, if the provider acts as they should. When you consider that stocks and share ISA transfers go through really quickly, you would think cash would be even quicker. It isnt the process that is at fault. It is the manpower at the provider and the FSA just need to enforce TCF at those bad companies.