Where to save first?

RoxRoxBling

Would it be better to save per month everything first into an Isa or
should I save between an Isa and Saver's account per month?
The Isa interest rate is 3.3% paid yearly, the Saver's is 3.06% paid monthly.

Sorry if it seems like a simple question :cool:

psychic_teabag

Given those two choices, you definitely want to fill the ISA first. Might be worth opening the saver account just to reserve the interest rate ; then when you've filled the ISA open a new saver if available rates are better, or stick with the 3.06% if rates have gone down.

However, another option is to save into a regular-saver account first, then when it matures, transfer to the ISA. Assuming you're a taxpayer, you'd be looking for more than 4% from the regular saver - there are a few around offering 4% but that's not quite enough to match the ISA (though it does beat the non-ISA saver). There are regular saver accounts offering 5% or even 8% - see https://forums.moneysavingexpert.com/discussion/608697

I think there may also be some regular-saver ISA accounts recently launched - 4% or 5% perhaps. Best of both worlds if you don't already have a lump sum ready to go into an ISA.

psychic_teabag

One small correction : if you might need to temporarily withdraw some of the funds during the year, there is a case for splitting the money across both : you want to avoid having to withdraw from the ISA unless you have to. Depends in part on how much you'll be saving : if you will be saving, say, £2k over the year, withdrawing from the ISA shouldn't affect things. But if you'll be saving more than the allowance, you want to try to ensure that any money that goes into the ISA doesn't come out, since you may not be able to replace it.

RoxRoxBling

Thanx.
I have already put in £1658 for this tax year. But I plan to use the money by July. Between now and July I can save £1500 (saving around £500 per month)
Which means I have £4500 to save between Aug-Apr which I would like to put in the Isa.
Am I better to save any additional money (between now and July), which I will use in July in the regular saver?

Also, how big of a difference do the interest rates, on the two accounts I already have, make?

psychic_teabag

So you've already put £1658 into an ISA. You'll save another £1500, and in July you'll be spending all £3158 ? But then want to save another £4500 by the end of the year.

Okay, you can only put another £4k (approx) into an ISA this year. If you add £1500 to the ISA, then you'll reduce that to a max of £2500 after July. However, there is a nasty trick you could play on a S&S ISA provider, if you feel mean... you could transfer the cash ISA to a S&S ISA, then withdraw the money from there (without investing it). That effectively means you've actually used your S&S ISA allowance rather than your cash ISA allowance. Then you can start again with a brand new £5640 cash ISA allowance.

If you don't want to play that trick, I think my inclination would be to add the £1500 to a non-ISA, saving the ISA allowance for the later money. (But I haven't done the sums to check that.)

You could look for a regular saver which allows withdrawals : could start that going, then withdraw the money in July. Monmouthshire BS have one offering 4% on up to £1000 per month. There are others offering more, but I don't know how flexible they are. (Many reg.saver accounts seem to be branch-only these days - guess they're trying to pull you in so they can sit you down in front of a salesman.)

Assuming you pay basic-rate tax, 3.06% becomes 2.5% net. So the ISA returns 1.3 times the interest.

RoxRoxBling

psychic_teabag wrote: »

However, there is a nasty trick you could play on a S&S ISA provider, if you feel mean... you could transfer the cash ISA to a S&S ISA, then withdraw the money from there (without investing it). That effectively means you've actually used your S&S ISA allowance rather than your cash ISA allowance. Then you can start again with a brand new £5640 cash ISA allowance.

I really don't know much about S&S, I've never really looked into them. IF I was to do this would it work? And would previous years tax allowance have to be transferred?

I'm feeling curious after you've mentioned that!

psychic_teabag

No, you don't need to get involved in S&S. You'd merely be exploiting one of the ISA rules, such that when you transfer a cash ISA to a S&S ISA, it resets the allowances, so that it as if you put the money into the S&S ISA in the first place. So when you subsequently withdraw the cash from the S&S ISA, you have used none of your cash ISA allowance (but some of your overall £10k ISA allowance).

If your cash ISA contains some of last year's allowance, which I assume you want to remain as cash ISA, you'd have to specify that you want to do a partial transfer of your cash ISA, taking only the (whole of) the current year's subscriptions.

As far as I know it would work, based on my understanding of the rules. I haven't actually tried it myself. Maybe someone else can confirm or refute.

Note also that you'd have to give yourself a bit of time before you need the money, since it could take a little while for the transfer to actually take place.

Lansdowne

As far as I know, holding cash in a S&S ISA pays very small amount of interest so it's unlikely to be a good idea compared with using a normal instant access account for the short term saving and the Cash IS for long term.

psychic_teabag

I'm not suggesting leaving it in the S&S ISA. Merely transfer it to a S&S ISA immediately before withdrawing it, in order to reset the cash ISA allowance for the year.

ie pay into the cash ISA until, say, June.
Transfer the cash ISA to S&S ISA - may take a few weeks - then immediately withdraw it and put it in an ordinary savings account until you actually need it.
Open a new cash ISA in August and resume paying into it, up to £5640.

Or transfer the cash ISA now, and then withdraw it, and just use an ordinary savings account until July.

If you don't want to go to the bother of transferring to S&S ISA (and I'm not entirely sure it's worth the bother), the one thing you don't want to do is close the cash ISA when you withdraw in July : you'll not be allowed to open another one this tax year. So leave the minimum balance in there.