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MSE News: Is it still worth saving in a cash Isa?

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This is the discussion thread for the following MSE News Story:

"Rates are dismally low in comparison to taxable savings accounts, so should you still bother? We answer the dilemma ..."


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Comments

  • hebron
    hebron Posts: 197 Forumite
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    Doesn't seem much difference for a basic rate tax payer. If you are a higher tax payer then it's still worth it.
    Then you have to go through the hassle of transferring every year because the rate has dropped, and that always has a few days of lost interest involved.
    For lower rate taxpayers it's hardly worth the hassle.
  • apt
    apt Posts: 3,190 Forumite
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    If you don't like the hassle of switching then go for a fixed rate when a good opportunity arises, although now is probably not the best time to fix. As Martin's quote rightly emphasises, the potential benefit of an ISA is really for long term savings.
  • Mikeyorks
    Mikeyorks Posts: 10,377 Forumite
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    hebron wrote: »
    Then you have to go through the hassle of transferring every year because the rate has dropped,

    Not if you look ahead and fix the rates whilst times are good? All my cash ISAs were fixed for 4 or 5 years at the outset. They're beginning to mature from this next year ... but earning an average 6%.

    But I did decide to put last years into Funds within an ISA ... because of the low cash rates. And that was outperforming the Cash ISAs by a factor of 9 ......... until I diluted it by adding the further (over 50) £3k in late Oct.
    If you want to test the depth of the water .........don't use both feet !
  • Reaper
    Reaper Posts: 7,295 Forumite
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    I do feel the banks are undermining the whole concept of an ISA. The idea was to encourage everybody to save. Instead it is turning into a tax perk just for the rich.
  • Masomnia
    Masomnia Posts: 19,506 Forumite
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    The article neglects the fact that a lot of means tested benefits and things based financial assessment don't include interest in ISAs. The student finance people for example are only interested in taxable income, so ISA interest is not included, could be worth it for many people in that kind of situation.
    “I could see that, if not actually disgruntled, he was far from being gruntled.” - P.G. Wodehouse
  • dunstonh
    dunstonh Posts: 116,886 Forumite
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    over 65s can benefit from ISAs even if the rate isnt as good. Remember their age allowance can be reduced creating nearly an extra £1000 a year tax.

    Interest rate differences often occur in short term periods. However, ISA is really a long term wrapper.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • OneADay
    OneADay Posts: 9,031 Forumite
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    If you have small amount of money in an Isa, it would make sense to ditch it and go to fixed or instant access saving account paying a better rate.

    But if you have spent years building up your cash in an Isa, then switching is not a good idea clearly as you lose the tax benefit with the prospect of rates going back up (eventually).

    Having seen a thread on the forum recommending m&s 3 year fixed rate of 4% Isa (with £100 penality for early withdrawal), I am opting to switch my cash isa funds to that.

    After all where willl you get 4% after tax with a regular saving account at the moment (unless you are lucky enough to have fixed it a few years back).

    I do have a gripe about Isas - it seems they are good if the times are good but very bad for savers when times are bad. And if we all put money away into Isa, where will government get its taxes from?
  • hebron
    hebron Posts: 197 Forumite
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    apt wrote: »
    If you don't like the hassle of switching then go for a fixed rate when a good opportunity arises, although now is probably not the best time to fix. As Martin's quote rightly emphasises, the potential benefit of an ISA is really for long term savings.

    I made the mistake until recently of saving with one ISA provider. Having builtup a nice sum can be a hindrance. I need to keep some of the money in easy access and I would like to put the other in a fixed rate. The banks don't let you do this as they don't allow partial transfers :You have to transfer the lot.
    I do have another fixed rate ISA as I have learned not to put it all in one place with an ISA.
  • Baldur
    Baldur Posts: 6,565 Forumite
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    hebron wrote: »
    The banks don't let you do this as they don't allow partial transfers :You have to transfer the lot.
    I've certainly made partial transfers of previous tax years' Cash ISA funds within the past couple of years - you seem to be generalising.

    Some ISA providers will permit partial transfers, some won't.
  • Mikeyorks
    Mikeyorks Posts: 10,377 Forumite
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    We currently have £50k in cash ISAs plus another £10k to add in April.

    Excellent ..... but I trust you're keeping pace with the best rates? If you're looking long term it's a good idea to fix the rates when they're high. Which obviously rules out the current trough.

    I wouldn't want £60k long term at the mercy of variable rates.
    If you want to test the depth of the water .........don't use both feet !
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