ISA advice. First timer

bluejuz

Hi everyone,

I'm looking to start an ISA account ASAP and I'm looking for some advice if anyone could help.

I have around 5,000 in my HSBC current account. (stupid I know)

I have opened up a regular savings account and put 1,000 in that (only 0.1% I think)

I am 32 now and have no pension so I am thinking I need to start some saving and pronto.

As pensions seem to have dies a death I am looking at cash ISAs.

I can put around 3 of the £5k in my current account into an ISA and also save about £400 per month into one.

I can also fix it for a year maybe two.

I know I have done myself out of interest this past few years so now is the time I got my savings in order.

Any advice would be greatly appreciated.

psychic_teabag

When you say a "regular savings account" do you mean an ordinary savings account ? It's just that a "regular savings account" around here is usually taken to mean an account for regular savings, ie into which you might put £400 per month by standing order and get an increased interest rate - http://www.moneysavingexpert.com/savings/best-regular-savings-accounts

0.1% is a really poor interest rate - hardly better than current account. You should be aiming for around 3% for instant-access at the moment.

One possible tactic would be to put your £400/month into a regular saver (you can get 8% at the moment) for a year, and then at the end of the year move the balance to an ISA and start again.

Have you read Martin's saving articles ? Check the banking+saving button at the top of the screen.

Why do you say pensions have died a death ? Do you mean the stock market has been down a bit recently ? That's a perfect time to be investing in it. (Doesn't have to be with a pension, though.)

bluejuz

Hi I just mean an ordinary savings account, sorry. I don't put a regular amount in. I think I should transfer this money into an account with a better rate.

So I guess what I am asking is what would be the best option with my £5,000 in my current account and also should I put the £400 or so I can save per month into savings account or ISA?

I understand there are probably a few options available but just after some advice.

My statement about the pensions is just me not really knowing what I'm on about I'm afraid.
It just seems like they are not the best option anymore. From what I hear.

psychic_teabag

A cash ISA is just a savings account, that happens to pay interest tax-free. So it's not really a question of savings account or ISA.

Unless your current account is paying interest, there's no reason to keep a large balance in there. With online banking you can quickly move money between current account and savings account (whether that's within the same bank or external). There are current accounts offering decent interest rates (up to max balance) if you don't trust yourself to move money into the account in time to meet bill payments and things.

Do you have an emergency fund ? If not, you probably don't want to put your savings into fixed-term account just yet, unless the account allows early-access, with penalties - some fixed-term ISAs do seem to allow early access, with loss of interest.

One caveat is that you probably don't want to use an ISA to shuffle day-to-day money back and forth from current account : each deposit into the ISA counts towards the annual allowance, but a withdrawal doesn't increase the allowance. Read Martin's ISA guides if you haven't already done so.

dtsazza

bluejuz wrote: »

As pensions seem to have dies a death I am looking at cash ISAs.

Care to elaborate?

As a brief aside, a pension is just a tax wrapper like an ISA (with the difference being you get a tax redemption paying in, but it forms a taxable income when you take the money out - and you can't do so before 55).

Since pensions typically contain stocks and shares investments (due to their long-term horizon), their performance will depend entirely on the invesments they contain. And this will be the same performance as a stocks & shares ISA containing the same investments.

Please accept my apologies if this was unwelcome or something you already knew - but it dismays me when people talk about pensions as if they're some sort of magic product with arcane performance characteristics.

So I guess what I am asking is what would be the best option with my £5,000 in my current account and also should I put the £400 or so I can save per month into savings account or ISA?

The only real difference between a "normal" savings account and an ISA, is that with the ISA you don't pay tax on your savings interest (and that there's a cap on how much you can pay in per year). This means that for a basic taxpayer the ISA would pay 25% more for the same nominal interest rate.

The simple answer is to put the money into the account with the highest net rate. Usually this will be the ISA, but if for some reason you could find a 4% "normal" savings account and only a 3% ISA, then the savings account would be the better option (as it's effectively 3.2% after tax, so still higher than the ISA).

This assume that you're planning to keep the money in there long-term as a sort of pension-like savings scheme. If there's a fair chance that you'll be withdrawing the money from time to time, bear in mind that the yearly contribution limit for an ISA is the total of all deposits (withdrawals don't top this back up). So if you wanted somewhere to "sweep" your salary for a couple of weeks, then move it back to your current account to pay a few bills, an ISA would be bad for this as you'd burn through your limit very quickly and have little money left in the account to show for it.

bluejuz

Thanks for all the advice, I appreciate it.

I am looking to start saving towards my retirement really but also know I need a pot for emergencies.

What I think I will do is have a look for a decent cash ISA that allows easy access for a year or so just to get the savings ball rolling.

Then maybe also start a regular(pay in set amount monthly) savings account too.

bluejuz

HSBC are offering a regular savings account at 4% fixed for 12 months as long as I deposit between £25-250.

Would it be a good idea to maybe put my 3,000-4,000 into this and add say £250 per month?
Then by next year I could dump the lot into an ISA.

At the moment the easy access ISA's only seem to be around 3% or slightly over like the AA one at 3.05%.

The issue then is what to do with the other £150 per month I would like to be saving.

JamesUKA

It's a good point raised here, a lot of people are questioning pensions because of poor performance in the past and considering ISA's instead.

However, it's not the pension that has underperformed, it's the assets the pension funds where invested in. ISA's can be invested in stocks and shares in the same way that pensions can. Also pensions can invest in savings accounts in the same way (cash) ISA's do. If you take out a SIPP, some of them give you access to UK and international savings accounts. The savings account have to be able to work with a (pension) trust, bit there are plenty of them paying around 4%/5%. I can provide a list if anyone wants one.

The benefit with a pension is the tax relief. A standard 20% up to a limit, and if you're a higher rate tax payer you can claim more than that via end of year tax return. Obviously the downside is that only 25% can be withdrawwn as tax free cash (after age 55), and the rest is taxed as income on withdrawal. An ISA is completely tax free, and can be withdrawn at any time.

It's all down to how much benefit you think the tax relief will give in a pension, compared to the flexibility of an ISA.

Maybe a bit of both worlds would be good. ISA for an emergency fund, and pension for something you can't touch until retirement !

atush

I agree you should take another look at pensions if you are a taxpayer. AS they get an immediate uplift due to basic rate tax, so you would have to lose a lot before it would affect you. This I would so with some of your regular saver money.

And I agree, I would put the 5K into a cash isa.

bluejuz

Yes fair enough.
My knowledge of pensions is very little to be honest. It's just I hear people going on about how employees would match your contribution and final salary pensions etc. years back.

I will definitely do some reading up on pensions and see what's about.
A bit more research needed from me I think.

Thanks guys