Cash ISA - more of a theoretical question

nonsavant

Hi all, hope someone can help me with this question. Right now I have ~£15k in a Cash ISA, and although I have been under the income tax threshold recently, this year I expect to be above it.

Cash ISA rates are pretty low right now (I'm need to beat 3% to offset mortgage), so I could probably earn more interest by moving the money to a savings account or into investments. BUT... isn't it best to keep as much money as possible in the Cash ISA 'system', as a general rule?

Theoretically, if I withdrew all of the money now, but then rates improved in say 3-6 months time, I would be losing out on a fair bit of interest as I could only put £5k back in this year. It would take 3 years to bring the total in the ISA back to what it is now (£15k).

So it seems that it makes sense to keep the amount of cash in an ISA as high as possible, because (a) most of the time it's a good return and (b) it is impossible to build it up quickly from zero.... or is my reasoning completely flawed? I suppose if it's possible to get an interest from another product that out-performs the ISA even after tax, then that would be an argument to leave the ISA.

Many thanks for any opinions or clarifications!
Cheers, Pete.

dzug1

I think you've understood the arguments pretty well. Not quite sure what you are asking apart from maybe for reassurance

Totton

You are right, if you can leave the money in an ISA then that may be the best thing to do. Not necessarily for the interest rate now but if we get higher rates then the tax saving becomes greater as it compounds. I have read before that USA's are not that great for non-higher rate taxpayers but I would tend to keep as much tax-sheltered as possible.

nonsavant

A bit of reassurance is always nice Thanks! I will leave the ISA as it is and keep looking out for better rates.

badger09

Basic rate taxpayer here

I currently have about £75k in cash ISAs (some posters have more). At a very conservative 3.3% interest - and some of my Fixed Rate ISAs are earning much more than that, I'm around £500 a year better off, just from the tax saving. Compounding and long term savings can mount up and I'd rather have £500 in my account than in HMRC's

grey_gym_sock

cash ISA are well worth it for basic rate taxpayers. S&S ISAs are of limited value when on basic rate (unless making big enough gains to pay capital gains tax).

Crabman

I've moved this thread to the ISAs sub-board

Hi, Martin’s asked me to post this in these circumstances: I’ve asked Board Guides to move threads if they’ll receive a better response elsewhere (please see this rule) so this post/thread has been moved to another board, where it should get more replies. If you have any questions about this policy please email [EMAIL="forumteam@moneysavingexpert.com"]forumteam@moneysavingexpert.com[/EMAIL].

psychic_teabag

nonsavant wrote: »

Cash ISA rates are pretty low right now (I'm need to beat 3% to offset mortgage), so I could probably earn more interest by moving the money to a savings account or into investments.

It's worth checking, rather than just assuming. Around the turn of the financial year, ISAs tend to pay more than normal savings accounts. That still seems to be the case for instant-access (just), but fixed-term ISAs have dropped back a bit now. There's definitely an advantage in getting your fixed-term ISAs to be in phase with the financial year, maturing around March/April.

nonsavant

psychic_teabag wrote: »

... There's definitely an advantage in getting your fixed-term ISAs to be in phase with the financial year, maturing around March/April.

That's certainly got me thinking. My present easy access ISA has a one year bonus which finishes next month and presumably the rate will plummet. I guess the best thing to do is to move to the next best easy-access account, but come the next financial year, shop around and move if appropriate... is it possible to transfer an ISA twice in one year?

Thanks for all the responses so far!

badger09

nonsavant wrote: »

That's certainly got me thinking. My present easy access ISA has a one year bonus which finishes next month and presumably the rate will plummet. I guess the best thing to do is to move to the next best easy-access account, but come the next financial year, shop around and move if appropriate... is it possible to transfer an ISA twice in one year?

Thanks for all the responses so far!

As long as its in instant access (or after end of fixed term) and you keep all current tax year's subscriptions together, you can transfer as many times as you like