Should I stop using ISAs?

Chriskim

I'm 69 years old and have a state pension of £6959 as my only income. I don't pay tax and don't have to fill in a Self Assessment form any more.

I have about £50,000 in long standing ISAs. Should I now opt for a higher interest rate in ordinary savings accounts? When is the personal allowance going up and how much interest could I earn at the moment before I would have to pay tax on it, please?

Chriskim

lisyloo

Tax allowances go up on 6th April.
Yours is currently £10,500
http://www.hmrc.gov.uk/rates/it.htm

So you can earn 10,500-6959 = 3541 before paying tax.
That's about 7% of £50K which you're unlikely to get, so you aren't going to breach the limit anytime soon.

It would seem sensible to go for the highest rates.
The only exception I can think of is if your cirucumstances were to change in future e.g. marriage, inheritance or modest lottery win.

evenasus

You would be allowed to receive another £3541 (including savings interest) before you had to pay tax.

evenasus

lisyloo beat me to it.

psychic_teabag

From a quick look at the comparison tables, ISAs seem to be offering better rates than ordinary savings accounts for everything up to 4-year fix. For 5-year fix, non-ISA has a slightly higher rate. Maybe SAGA are offering better rates that didn't show up.

It would seem a shame, having endeavoured to build up this pot of ISA money, to bring it all back into the taxable world, since it would hard to get it back into the ISA world if something were to change.

Chriskim

That's really helpful and clear. I am shocked about the low rates on ordinary savings accounts. I really thought they would be giving much more. In view of your advice, I will stick with the ISAs. I have 39,000 maturing on a fixed rate on 30th April with Dunfermline and they are offering to renew at 3.15%. Now another question, please. Is it worth fixing with BM Savings for 2 years at 4.05%? What do your crystal balls say about rates, please - up or down within 2 years?

psychic_teabag

Because this is "ISA season", ISAs are relatively high at the moment. I think for most of the year, ordinary savings accounts do tend to pay more (or rather, ISAs pay less than ordinary accounts).

I believe several people "ladder" their savings with, say, three 3-year fixes running concurrently, out of phase, so that one matures every year. To get started with that, could fix some for 1-year, some for 2-year and some for 3-year, and then when the 1-year matures, fix it for 3 years.

If you won't be using your ISA allowance, you could withdraw £5k and then put it back in as new money into one of the 3.5% no-transfers instant-access, which matches the 1-year fix rates at the moment.

I don't know if you use your ISA capital to supplement your income. Accessing fixed-rate ISAs tends to incur a penalty. You might consider splitting them into some smaller pots, then if you need to access some money, you don't incur the early-access penalty on the whole lot.

Chriskim

Thank you psychic t. Once again, that's useful advice. Especially about taking out £5000 and reinvesting, as I no longer use my ISA allowance each year. I do use it as income and am unlikely to spend it, but you never know.......................

DragonQ

Let's say you have all your ISA money in an ISA at 3%, and there's a savings account with 3.2% gross. If you take all that money out of the ISA and put it in the savings account, you'll get more money.

But then what happens when the rate drops? This time next year the best ISA might be 4% and the best savings account might still be 3.2%. This time, you can't just switch because you've lost your previous years' ISA allowances.

So it kinda depends on the general interest level of ISAs vs normal savings account, rather than what's best right now. I'm sure that over the last few years the best ISAs have been better than the best normal savings accounts (at least around March/April). Who knows what'll happen in the future though - the Flexclusive ISA at 4.25% is miles better than any normal savings account right now, for example.

Chriskim

This is also reassuring dragon. I had looked at the Nationwide but I don't have £750 per month to pay into a current account. And I have an affection for my cooperative bank.

Thank you

Joe_Bloggs

I am clueless to the answer but is holding 50000 in assorted cash ISAs affecting means tested benefits that Chriskim could qualify for ?
I don't know what these benefits are but I do know that too much in savings result in zero for means tested benefits.
J_B.