Are Cash Isa's now a waste of time ?!

luvpump

Just had a letter off lloyds saying my ISA expires in a few weeks & would i like to re-invest at there "Special" rate, not yet open to new Customers..paying a huge !!! ...2.25% !!! .. Might aswell go for a fixed rate bond off someone else & pay tax on it !!

Lokolo

And lose out on tax free interest for the rest of your life from that £3600? Or however much you have in your ISA?

Rates aren't going to stay this low for decades and decades. If they do, we're all screwed.

Milarky

Lokolo wrote: »

And lose out on tax free interest for the rest of your life from that £3600? Or however much you have in your ISA?

This is a moot question, but depends mostly on how much the saver has in relation to 'ISA-years' (i.e. how many years' full allowances are at stake) If it is just a single year then it is worth considering taking the cash and waiting for rates to return. People even with good fixed rates at present also have the dilemna of whether to start saving 'next' year's money as early as April - or waiting until the following March.

ISAs have been a disappointment in general because interest rates came down shortly after they were launched. 'Low inflation' is nice, but it led to the longest period of lowest rates I could remember - and now the bottom has just fallen out of these.

To the OP I would say: don't take a fix at that rate. Better to transfer your ISA to the best variable rates - or.... there is currently a First Direct offer of a fixed rate (3%) for 12 months - but with access during the term. That could do no harm to their options..

undercoat11

I think I agree with this point. I have just opened a new cash isa for 4% with Julian Hodges Bank, but up to that point I was a bit fed up with my isa and was considering putting the money into an ordinary account.

The banks seem to have a very low rate of interest on them to compensate for the fact that we don't pay tax on the interest. This makes it a similar rate to an ordinary fixed rate account. It is a big diddle in my opinion.

Hungerdunger

undercoat11 wrote: »

The banks seem to have a very low rate of interest on them to compensate for the fact that we don't pay tax on the interest. This makes it a similar rate to an ordinary fixed rate account. It is a big diddle in my opinion.

Which makes me wonder, if the Conservatives win the next election and abolish tax on savings for basic rate tax payers, whether the banks will reduce the rate on all savings accounts to the level of ISAs, knowing that they will be able to get away with it.

Primrose

I agree that at the moment, cash ISA's certainly don't seem very worthwhile but I think going forward, with the economy in the terrible state it's in, we will inevitably all be subjected to some fairly hefty tax increases which could last a considerable time. So for this reason alone, it's worth taking a longer term view about the tax shelter of ISA's, both cash and equity, especially if you have built up your allowances over a period of years. There's no guarantee that savers in the future will be given more favourable terms on tax on interest, or that even if a concession is granted, it will be more than a temporary reprieve, so until something happens to convince me to the contrary, I will still endeavour to make the most of this annual tax-free allowance on the basis of 'use it or lose it'. Also, if you have cash ISA's, you can now transfer them into equity ISAs which could have a longer term prospect of providing you with a high tax free return.

jazzycat_2

I don't see any point in my having ISAs at all as I'm a non tax payer. Now the interest rates are so low I think it might be best to transfer my last 3 years ISAs to a higher inerest savings account. ING direct have an opening offer of 5% which includes an opening bonus fixed for 12 months. Are there any hidden benefits for me in keeping an ISA that I don't know about. Would appreciate any advice. Thanks.

Milarky

Primrose wrote: »

There's no guarantee that savers in the future will be given more favourable terms on tax on interest, or that even if a concession is granted, it will be more than a temporary reprieve, so until something happens to convince me to the contrary, I will still endeavour to make the most of this annual tax-free allowance on the basis of 'use it or lose it'.

Just as there's no guarantee that the current tax free status of peoples' ISA deposits will remain tax free either. There is 'conventional wisdom' of course that no government would ever seek to tax these balances - even if the particular scheme - ISA - was discontinued. I would put this at the very low end of possibilities, therefore, with the possibility that [basic rate] tax free status on all accounts being removed being somewhat higher.

Remember how long the totemic ''We will not raise the basic rate of income tax'' has been spouted by both major parties? It's been 30 years this year (taking 1979 as the datum) So that's one area where they have both shown remarkable consistency. Of course it's an almighty con. They have fixed on one tax not to raise (and even cut progressively) whilst, all the time, giving themselves complete carte blanche to raise all other taxes - National Insurance being Labour's drug of choice.

Anyway. We can only base current actions on present realities. At present ISAs give a 'tax break' but rates are pretty 5hitty. ISAs have had a unhappy first decade (launched in 1999) So maybe things will get better eh?

silversand

jazzycat wrote: »

I don't see any point in my having ISAs at all as I'm a non tax payer. Now the interest rates are so low I think it might be best to transfer my last 3 years ISAs to a higher inerest savings account. ING direct have an opening offer of 5% which includes an opening bonus fixed for 12 months. Are there any hidden benefits for me in keeping an ISA that I don't know about. Would appreciate any advice. Thanks.

Depends - is there any chance that you may end up paying tax in the next three years? Personally if there is I would remove one years contribution (£3600) and put it in a normal savings account because you can then put that back easily if you do end up becoming a tax payer.

However, if there's no chance of you paying tax in the next few years then by all means remove it all

tradetime

Agree with most of the commentary, have been somewhat disappointed that the banks seem to think it their right to have a piece of your tax advantage by offering lower rates for ISA's than many other types of accounts, but I continue to make use of the allowance.

zzzLazyDaisy

It is worth noting that the Lloyds TSB Fixed Rate ISA for existing fixed rate ISA customers has tiered rates, so the interest rate offered increases with the amount invested.

Someone with £30k+ would get 3.75%, fixed for one year. This rate is guaranteed to take effect when the current fixed rate ends in April 2009. Bearing in mind that rates may have further to fall by then, this is a reasonable rate in the current climate.

Granted, this only helps those people who have been saving in cash ISA's for some time, or TESSAs before that, but it gives another incentive to stick with tax-free ISAs

(Nat West also had a good offer last year for people with large sums to transfer)