MSE News: Savings rates dive, so what next for your cash?

gadgetmind

grey_gym_sock wrote: »

just abolish ISAs and increase the personal allowance slightly

No thanks, we like our ISAs.

the personal allowance is available for both earned and investment income.

Not always.

grey_gym_sock

gadgetmind wrote: »

No thanks, we like our ISAs.

i like them, i.e. i have lots of money in ISAs. but i can't justify them; the simpler ways of cutting taxes are fairer and, er, simpler.

Not always.

er ... do you have in mind the non-reclaimable (a.ka. fictional) 10% tax credit on dividends?

Rollinghome

grey_gym_sock wrote: »

i like them, i.e. i have lots of money in ISAs. but i can't justify them; the simpler ways of cutting taxes are fairer and, er, simpler.
er ... do you have in mind the non-reclaimable (a.ka. fictional) 10% tax credit on dividends?

I've always benefited and made use of TESSAs, PEPs, Single Company PEPs, and all flavours of ISAs but would agree that the way savings and investments are taxed is a mess. It's unfair and the regulations don't have the intended effect.

My investments are hugely complicated because I have to have separate investment and savings accounts for ISA and non-ISA, and moving investments between them is difficult. I also have to have still more accounts for my wife because joint ISA accounts aren't permitted. Moving ISA accounts to new providers, perhaps because they've altered their terms or charges, whether S&S or cash, is often costly, slow and and difficult.

I'm in no way encouraged to save or invest more by the allowances because my investments into ISAs are always funded from non-ISA savings and investments.

It is also very unfair on many people. Especially, those not in a position to pay into ISA accounts in their early years, perhaps because they had the cost of children or had to work their way up from a low wage.

They'll lose their allowance for those early years forever and will never be able to catch up while those who start life from a more privileged position will gain full benefit that they'll enjoy probably for the rest of their lives. To that extent, the children of the idle rich have more chance to benefit than the children of the industrious poor.

People paying only the basic rate of tax are likely to get little or zero benefit from a S&S ISA and it's difficult to predict whether a S&S ISA will ever bring any benefit. Shouldn't those on low wages who find it most difficult to invest get as much encouragement as those who should find it easiest?

If there are to be tax benefits for saving and investing then they should be available to everyone equally, possibly in the form of a normal annual non-accumulative tax-free allowance for savings or investment.

I would also suggest that there should be fairer treatment for small savers, especially in periods of low interest and high inflation. If inflation is 4% and the savings interest rate is 3% then you are making a loss. It's not equitable add to the injury caused by inflation by taxing a loss of 1% as if it were a profit of 3%.

But I doubt that the ISA allowance will ever go. It's far too valuable a sales tool to the investment management lobby.

gadgetmind

grey_gym_sock wrote: »

i like them, i.e. i have lots of money in ISAs. but i can't justify them; the simpler ways of cutting taxes are fairer and, er, simpler.

ISAs are pretty fair as all adults get them.

er ... do you have in mind the non-reclaimable (a.ka. fictional) 10% tax credit on dividends?

No, what I had in mind was that increasing the personal allowance doesn't benefit those people who don't get a personal allowance.

C_Mababejive

Saving is now a mugs game. You the savers are sacrificing your quality of life in your youth in order to finance the previous and present expenditure of the less thrifty! Not only that,but the savings you think you are making are actually losings..

Go do the math

http://www.hl.co.uk/news/inflation-calculator

Frightening isnt it?

And dont think you will find shelter in ISAs either as they are also mostly losings.

No,,my current solutions are..

Buy index linked products ( not widely available now)
Buy highly rated funds consisting of bonds and defensive solid sectors
gamble a bit on the lottery and PBs
Use my good financial standing as leverage to get debt
Look out for good value tangible assets to preserve wealth.

Dont stick cash in a savings account. Remember,it is just another asset class ..a simple colour picture of HM Queen and only worth what the government of the day decides its worth.One day it could be worthless.

grey_gym_sock

gadgetmind wrote: »

ISAs are pretty fair as all adults get them.

ISAs are unfair because they favour ppl who've been subscribing to them for longer. so if 2 ppl have similar amounts invested, but 1 has had the capital for a longer time, they will have been able to shelter more inside ISAs. the greatest benefit is for ppl rich enough to max out the allowances every year by moving existing capital in.

ISAs are unfair because there are no similar reliefs available for earned income; it's 1 element of a system in which earned income is taxed more heavily than investment income. it would be fair to tax earned and investment income at the same rates. the difference is arbitrary, and favours many (though not all) richer ppl, who can often arrange to receive their income in whichever form is taxed less.

S&S ISAs are unfair because they don't save any tax for most basic rate tax payers, only for higher rate payers. the tax system should be progressive (though not penally progressive). this is 1 example of it being made flatter.

it's pretty obvious which way the wind is blowing. ISAs are intended to favour the wealthy, and/or as an marketing tool for the retail finance industry. "tax free" is a great sales point, even if the tax saving is sometimes non-existent.

ISAs also create unnecessary complexity. look at the all threads about the trouble ppl have transferring ISAs. or look at the issues in choosing a stock broker, where different 1s can be better value for ISAs and unwrapped (let's not mention pensions); and certificates are not an option for ISAs.

gadgetmind

grey_gym_sock wrote: »

ISAs are unfair because they favour ppl who've been subscribing to them for longer

It is barely the fault of the ISA system that some people decide to start saving earlier than others.

ISAs are unfair because there are no similar reliefs available for earned income

ISA capital *is* earned and taxed income.

S&S ISAs are unfair because they don't save any tax for most basic rate tax payers

Errr, yes they do, they save basic rate tax.

ISAs also create unnecessary complexity. look at the all threads about the trouble ppl have transferring ISAs

Lots of things in life are complicated, which is why we have schools.

DiggerUK

In the MSE linked article by Sally Francis, reference is made to the governments Funding for Lending scheme, and how it dampens the banks need for customer deposits as they can borrow cheaper from the government. How many of you bothered to read the article?
The flip side of that, is the reluctance of savers to risk money in the markets, which are in dire straights. That lack of trust for non cash savings means cash deposits are still made, despite below price inflation rates.

I still see no alternative to cash that will be needed within the next two years going in ISA's or PB's; and cash needed beyond that going in to gold.
..._

grey_gym_sock

gadgetmind wrote: »

It is barely the fault of the ISA system that some people decide to start saving earlier than others.

are you implying that it's improvidence that some ppl don't start saving early? it can be, but not always. most ppl earn relatively low amounts in the early adult years, so can make little use of ISA allowances. in later years, they may earn enough that the ISA allowance isn't high enough for their available savings. meanwhile, ppl with large inherited wealth can max out their ISA allowances from the start.

the question is: why does the ISA/tax system give an extra advantage to ppl who can save 11k per year from age 18 (or younger, now there are junior ISAs)? there is already a huge advantage in investing from as early an age as possible (time in the market, not market timing); why add to it?

ISA capital *is* earned and taxed income.

it's not the ISA capital that is being given a tax exemption, it's the income and capital gains made on the capital. ISAs give exemptions for investment income (and capital gains); there are no similar exemptions for earned income. WHY?

note that i am not trying to make any moral point against investment income. i am saying it should be taxed in the same way as earned income.

(also, ISA capital is not always earned. some of it is inherited or from previous investment gains.)

Errr, yes they do, they save basic rate tax.

i said "S&S ISAs". the point being that basic rate payers do not save tax on dividends. though, to be more accurate, they do save basic rate tax on income from REITs, corporate bonds and gilts.

Lots of things in life are complicated, which is why we have schools.

but that's no reason to make them even more complicated unnecessarily.

Thrugelmir

DiggerUK wrote: »

how it dampens the banks need for customer deposits as they can borrow cheaper from the government.

Lenders require customers deposits to maintain existing committed funds. With the contraction of the M4 money measurement since 2008. The BOE is probably forecasting a severe tightening of available
credit in the future. Remember banks were given until 2018 to comply with Basle 3 regulations for this very reason.