isa and savings

martyn88

Hi, I am new to this forum so if this had been covered I am sorry.

Right I have just opened a new santanderr 123 account as the interest is a lot higher than my current savings account, I have around £7000 in an isa paying 2% tax free. Am I better off keeping that in my isa or is it worth me moving it to the 123 account paying 3%. I no ill recieve more interest in the 123 account but is it worth me leaving the money in the isa to build on it year after year? instead of starting from scratch next tax year?
Sorry its long winded. Thanks

Totton

ISA's for me have one over riding benefit and that is their tax free status, of course that may change but for now any interest earned is tax free and that then begins to benefit from compounding where the initial tax free amount will next year gain from yet another dose of tax free interest.

I believe it is said that ISA's are better for higher rate tax payers but that does not negate the tax free element for everyone.

As you can only open one cash ISA per year, I would keep any ISA cash safe from HMRC, unless that is you believe you will not be keeping the money saved for the long term, if so then you may as well get the highest rate you can for it :-)

AndyPK

If you have no short term plans to spend the money in the ISA leave it there.

MoneySaverLog

They are better for higher rate tax payers because they are effectively saving 40% as opposed to 20% on any tax on interest. Which over time it is built up could be considerable.

Also every year the higher rate tax threshold is getting squeezed, to the point where at some point in your career you could end up paying the higher rate of tax. This is when it becomes quite beneficial to have all the previous year ISA money sheltered away.

innovate

MoneySaverLog wrote: »

Also every year the higher rate tax threshold is getting squeezed, to the point where at some point in your career you could end up paying the higher rate of tax.

This is very true, and doesn't just apply whilst you are still working. It can hit pensioners just as much as working people.

MoneySaverLog wrote: »

This is when it becomes quite beneficial to have all the previous year ISA money sheltered away.

I am sure you mean previous years, not just year

psychic_teabag

One factor to consider is how much of your allowance you use each year. Is your £7k the result of saving £1k per year, or have you been saving £500 per month for just over a year ? The relavant point being how long it would take to get the £7k back into an ISA if you were to take it out to exploit short-term anomaly in interest rates.

If you plan to use your full allowance every year from now on, you'd never be able to replace the money you take out of the tax wrapper. But if you only save £1k per year, it wouldn't take very long to replace the money (and you wouldn't be missing out long-term).

(There is a rather sneaky way to withdraw money from an ISA and still retain your full cash-ISA allowance - I won't go into further details for now...)

Plus it also depends on whether you are likely to spend this money soon. ISA has long-term tax benefits, but if you're saving up for something specific in a few years, the impact is reduced if you take the money out now.

MoneySaverLog

psychic_teabag wrote: »

(There is a rather sneaky way to withdraw money from an ISA and still retain your full cash-ISA allowance - I won't go into further details for now...)

If this is what I think it is it would also depend on if you've already used up your stocks and shares isa allowance for the year or want to use it