Please bear with me - ISA questions

debjam

Apologies to start off with, but am getting myself all tied up in knots trying to sort this out on my own. Have read several threads on here and the guides and am just going round in circles. Please help guys.

There is myself and hubby, we both have ISA's from previous years which I have transferred every year to new ISA to get better rates each year. The balances are £4k and £2k.

Anyway I have just reduced my working hours and am now below the tax threshold, OH is in 20% bracket. Quandry now is my mortgage rate is 2.5% pa and Coventry is 2.6% without transfers in. We only have £9k left to pay on our mortgage.

So Option 1 - do I use the £6k (means closing the ISA accounts down) and pay this against the mortgage and leave our mortgage payments as they are (we can afford to do this) so that we are mortgage free within the year but with no savings.

or Option 2 - transfer the ISA's to transfer in accounts, probably won't add to the savings this year as will be using any extra money to overpay the mortgage and hope the rates get better next year. Or even just take out the £4k and pay that into the Coventry account.

Now I have written this down it seems quite straight forward, I'm using savings that are getting a lower interest rate to pay off a debt with a higher rate, but I'm worrying about the fact that everyone keeps saying don't close down an existing ISA account just transfer the amount to new ISA's, this is where I'm getting confused. What will happen if I do close the ISAs? will the tax man want his money back? Yes I know it sounds stupid but this is what is going round and round in my head, I keep reading about losing the tax free status - but how?

Sorry didn't mean to turn this into war and peace but it seems to have. Any help with this would be gratefully received, and might mean I'll actually not wake up in the middle of the night again trying to figure it out.

saintalan

debjam wrote: »

...What will happen if I do close the ISAs? will the tax man want his money back? Yes I know it sounds stupid but this is what is going round and round in my head, I keep reading about losing the tax free status - but how? ....

You will NOT owe the tax man anything.

All it means is that you will have given up the Tax Free status you had on that particular ISA for future years.

Otherwise you seem to have a plan. Apart from the sums there is something very therapeutic in paying off your mortgage:)

Good Luck

Alan

debjam

Thank you saintalan,:T I had just posted this and saw the other thread that you had posted on minutes before.

I think I understood it really, but just needed someone else to actually confirm it for me. OH is useless with these things and just keeps saying "don't know. do what you think is best".

Off for a goods night sleep now and going to sort out contacting the relevant banks tomorrow about closing the accounts.

saintalan

No problem happy to have helped.

This Forum is all about money saving but sometimes as long as you stick to the rules and not risking a fortune it feels good to go with your heart.

Cheers

Alan

PS Am going to have a good read of your Uncluttering thread!!

AlwaysLearnin

One thing to be mindful of; make sure you keep a bit back for emergencies. It's a great feeling to have no mortgage, but if you have no other savings and it will be a little while before you can build any sort of pot up again (i.e. while you finish the mortgage), murphys law says something will happen that you'll need a few pounds to cover.

debjam

Well no sleep here at the moment. :rotfl:

Yes AlwaysLearnin that is what is going around my head now.

If we use up our ISAs and overpay our mortgage it will take 17 months to clear, but this will leave us no emergency fund.

I am now toying with the idea of transferring the ISAs to new accounts for a better interest rate, and opening a Regular Saver Account and using the money that would have been overpaid on the mortgage for that instead. I am assuming that as I don't pay tax at the moment I will be able to claim that back and get an even better interest rate.

Well off to the Regular Savers board to investigate.

Yes saintalan that thread is brilliant (not mine though). haven't posted on there for a while, spend too much time reading what everyone else is doing, but it gives me the boot every now and again to sort my carp out.:)

AlwaysLearnin

If it were me, I think I'd be patient and wait until I had enough to pay the whole lot, plus a bit more, before looking to pay off the mortgage.

I don't want to confuse things further for you, but ISAs may not be the best option either, especially as you're under the tax threshold (i.e. you can claim the tax back on interest anyway).

For example, instead of transfering your existing ISA amount(s) to another low rate (assuming you want instant access, as it's your emergency fund too), you could (subject to acceptance) look to both open a Nationwide Flex Direct acct, each getting 5% on £2500 (which you claim gross). You have to fund the account with £1k per month from an external source, but conveniently you have £1k left which you could put in an easy access savings account with another bank with online banking (in your name, to get the gross interest), then once a month transfer it via faster payment in to you your flex direct, then back, then in to OH flex direct, then back, to satisfy that monthly funding requirement. The 5% rate is only for one year, and it involves a bit of jumping through hoops per above, but it's an example of how you could get a much better rate than your mortgage (and ISA) on your money, also giving you time to build the pot a bit more until ready to pay the mortgage off.

You could still look at regular savers for your surplus funds (again, your name to claim tax back), but remember you're committed for the year

Again, sorry if adding to the confusion, but thought worthy of consideration. This is just an example too, and you could potentially do something much simpler in a basic instant access savings account in your name with no funding requirements and still beat ISA rates at the moment.

Good luck

Yorkie1

If you're likely to go back into the tax bracket then it might be worth keeping the money with its tax-free status.

Given that you've got so little left on your mortgage, it should be paid off relatively easily (i.e. without too much aggravation) in its usual term. Personally I would always make sure I had 3-6 months' expenditure in emergency savings before looking to overpay my mortgage - particularly, as I said, as there's no pressing need for it to be overpaid.

debjam

Hi AlwaysLearnin,

That is what I have been looking at overnight. It would be easy enough to get my wages paid into this account which should cover half the £1k, so would only have to look for the other half.

Thanks again to you both for giving me the confidence that I am probably going in the right direction now for our money.

debjam

Hi Yorkie1,

Sorry posted my reply as yours appeared. Yes you never know about the future with work, I am taking a bit of a break at the moment and hoping that it will remain like this, but cannot guarantee that OH will always have work.

Yes lots to think about today, luckily OH has gone out and I have the laptop for the day so can really get into looking into this and getting my spreadsheets working. Just off to make a cup of tea and get stuck in.

fiesta04

That is what I have been looking at overnight. It would be easy enough to get my wages paid into this account which should cover half the £1k, so would only have to look for the other half

So just send £500 to your other account and back again, that's £1K satisfied.

F4