Are ISA's Just Rubbish?

lifemagic

I'm not sure I'm getting the ISA thing. I've got one with Nationwide, and I *think* I'm getting 3.10% but it's hard to find out which issue I have or even the account number.

There's going to be a bonus that expires, but I'm not sure when. when it does, I'll have to move it, which I can't do online, it requires a form.

I'm thinking of moving it to Northern Rock, but that pays 2.80 and variable, meaning it could change at any time, then I'd have to move it.

When I move ISA's, I have to check that the new provider will allow transfers out, then watch the rate for changes, and be ready to move by filling in hard copy forms.

I'm living on savings and studying at the minute, and so don't pay tax. I've got another non-ISA account at Santander, and I get 3.10 gross, instant access ... variable.

I've opened an ordinary (non-isa share) account at Halifax, a share account that is, and have 100.00 pounds there. I could also use this years ISA-share allowance (by filling in and mailing a form). I want to transfer about two grand now, and buy shares in British and poss US companies.

... but what's the advantage? Yes, there's no capital gains tax ... but I don't pay that now do I? Wouldn't having an ISA there being the same as having an ordinary share account except they charge a fee for it?

I just don't get the benefits of ISA? Thanks for anyone making that a bit clearer for me.

opinions4u

There are two key benefits to cash ISAs.

1) No income tax on interest today.

2) No income tax on interest in future years either.

For you, point (1) doesn't matter. You say you are a non-taxpayer therefore you could open any savings account, sign an R85 form and pay no tax on the interest.

Point (2) is relevant though. If, for example, in May, you get a part time job and start paying income tax, you would have to rescind the R85 and start paying tax on your savings interest. If your money is in a cash ISA, you wouldn't need to do this and you would continue to earn interest on savings you've already accrued without paying income tax on the interest.

If you're in the lucky position of being able to add to your savings, point two becomes even more valuable as each tax year passes.

As for stocks and shares ISAs, the main benefit is no CGT. If you can invest in the same types of fund, for the same management charges as a non-ISA plan, you should do. Granted, £2,000 is unlikely to generate CGT for many years, if ever. But as you (hopefully) add to your investment over time you can get to a point where you wish to cash in the whole fund at once. This can often leave the investor with an unexpected CGT bill that could have been avoided if the fund had been an ISA - a CGT bill that is often only remembered about after the investment has been spent!

dunstonh

Also with S&S ISAs, you can hold fixed interest securities and the ISA can claim the tax back on the interest distributions. So, many people use the S&S ISA for that part of the portfolio.

You shouldnt underestimate the affect of CGT. It only takes £100k pbefore CGT could end up being an an issue. Have that in an ISA and its a non-issue.

Nine_Lives

If you're a non tax payer, couldn't you open up the highest paying account you can find (you haven't selected them btw) & stick your money in there, earning maximum interest. Then at the end of March, have an Ida at the ready & transfer all that money into it.
Would that work?

On the topic of isas being rubbish, my dad was advised by some Ada elevate woman to take out (he said. Maybe he meant transfer?) from his cash isa as they're rubbish now & move to some axa elevate account. It did end up doing better actually but I never knew the ins & outs of the account.

gadgetmind

dunstonh wrote: »

You shouldnt underestimate the affect of CGT. It only takes £100k pbefore CGT could end up being an an issue. Have that in an ISA and its a non-issue.

Where does that figure of £100k come from? IME you can hit likely CGT issues with just a tiny fraction of that.

property.advert

For most folk, perhaps 99%+ the issue of CGT will never arise because they will simply never have enough savings, either within or outside ISAs. Thus, if an investment could be held more cheaply outside an ISA, it would actually be more prudent to do so.

Of course, anyone investing regularly and not dipping into their savings, then the CGT limit could be reached and if the costs are the same or benefits higher, then ISAs are the way to go.

As for how much you need invested before CGT becomes and issue, well, if you'd put your savings in Google and seen it rise 40,000% or whatever then maybe, but most people here aren't even gearing up with derivatives and margin trading and BT nor M&S are likely to increase in value 100 times anytime soon !

lisyloo

Where does that figure of £100k come from? IME you can hit likely CGT issues with just a tiny fraction of that.

I would h=guess this is based on the CGT allowance and the likely returns for most unsophisticated investors.

gadgetmind

property.advert wrote: »

if you'd put your savings in Google and seen it rise 40,000% or whatever then maybe!

I bought my daughter some shares a few years back and they are up <checks Yahoo portfolio page> 1330% since then. OK, not a google performance, but enough to turn just a few £k of shares into a multi-year CGT exercise.

Of course, while this is what I hoped would happen, it's very much the exception, but why risk it?

property.advert

gadgetmind wrote: »

I bought my daughter some shares a few years back and they are up <checks Yahoo portfolio page> 1330% since then. OK, not a google performance, but enough to turn just a few £k of shares into a multi-year CGT exercise.

Of course, while this is what I hoped would happen, it's very much the exception, but why risk it?

I totally agree but I'll wager another kidney that the good folk here are plugging their hard earned into rather more mainstream investments as they are foremost frightened of losing their wealth rather than seeking to increase it.

Most popular investment ? FTSE 100 tracker I think.

gadgetmind

property.advert wrote: »

I totally agree but I'll wager another kidney that the good folk here are plugging their hard earned into rather more mainstream investments as they are foremost frightened of losing their wealth rather than seeking to increase it.

I'm not so sure. We often get people popping in asking if they should bung the whole stack of chips on Lloyds or some junior oil explorer that their mate in the pub recommended.

dunstonh

The figure of £100k is just a guide. If you get a 10% gain then £100k uses up the annual CGT allowance (excuse rounding).

Of course, if you get a 40% growth year then it could be far less but if you average these things out, then you like to aim for 10% a year.

The bottom line is that it costs no more to use the ISA. So, its pointless not using it if you have the allowance available to you.