Stick with ISA for the long-term?

nonsavant

I've got ~15k in a Cash ISA, which is earning 2.3% (bonus rate until Oct 2014). Come the end of the bonus period, I'll be lucky to get 2% without locking away for some years.

I can earn 3% (taxed, so effectively 2.4%) in the Santander 123 current a/c.

What I'm really interested in, however, is what people think of the long-term benefit of leaving money in the ISA, even when they are not delivering good interest rates. Yes, Cash ISA rates may be going through a bad patch at the moment, with no end in sight, but given that annual deposits into a Cash ISA are limited, would it not be prudent to leave money in the ISA "format", for when rates pick up? Say in x years time, rates are up at 4%, I can transfer my 15k into a better-paying ISA and start earning interest on it, rather than starting from zero again.

Is that a good approach? Maybe it would be more important if one had even more in the ISA "system". I suppose by the time ISAs pick up again, the annual allowance might be up to such a level that 15k could be reached with two years of paying in.

At the same time, the only guarantee with the Santander current a/c option is that interest is taxed; the interest rate could be cut at any time.

Any thoughts?

lisyloo

What I'm really interested in, however, is what people think of the long-term benefit of leaving money in the ISA

Very valuable if you bear in mind these are for life, so could be 50,60,70 years.

With the difference yoyur talking about (0.4%) then personally I'd leave it in the ISA as my view is that things will change in X years.

Have you considered investing any of your £15K or do you need it accesible for some reason. In both these account you are losing money in real terms.

jimjames

If you are looking at having money for very long term then I'd question whether cash is the right place anyway - whether in an ISA or outside. Long term you will be losing out compared to inflation and investing in S&S will have more chance of maintaining your purchasing power than cash.

Obviously this doesn't apply if you need the money short term but as the question is long term it would be worth looking at.

Porcupine

One of the advantages of Cash ISAs over other forms of savings is you can easily convert them to Stocks and Shares ISAs - so you can start off by saving cautiously, then convert some of that to shares when you want to invest for the longer term. That's all inside the tax wrapper, so there's no CGT and no hassle of record keeping to prove you don't owe CGT.

shortcrust

lisyloo wrote: »

Very valuable if you bear in mind these are for life, so could be 50,60,70 years.

This makes me feel very old!

lisyloo

Well it's certainly a major factor in some financial decisions.
I'm 45 and that certainly affects my attitude, for example if I put money into a personal pension it's only tied-up for 10 years.
Whilst I almost certainly won't be able to retire at 55, the fact that I could theorectically draw-down makes a difference to how I feel about tying it up compared with being 20 years old and then it seems like forever.

The cash ISA question is a difficult one and I think it does call into question whether it's the right asset class.

I have quite a lot of cash ISA money but it's earmarked to pay off a mortgage in about 2 years time so I don't want to invest for the short term.
All of my spare money is actually invested.

Currently I'm looking at putting a lump sum into a solar PV installation and the return is estimated to be 11%., so there are other things to consider investing in.

agent69

jimjames wrote: »

investing in S&S will have more chance of maintaining your purchasing power than cash.

If only I could find somebody that would guarantee that.

I'm currently getting 3.7% on my cash ISA but the deal runs out in March. For the last 7or 8 years I have put the full allowance in every year. Having second thoughts about the coming year unless rates pick up. I might take a payment holiday and put the money into Ratesetter (currently offering 6% on a 5 year investment at low risk).

I can see ISA rates picking up in a couple of years so will probably sit tight with what I have until better times.

jimjames

agent69 wrote: »

If only I could find somebody that would guarantee that.

I'm currently getting 3.7% on my cash ISA but the deal runs out in March. For the last 7or 8 years I have put the full allowance in every year. Having second thoughts about the coming year unless rates pick up. I might take a payment holiday and put the money into Ratesetter (currently offering 6% on a 5 year investment at low risk).

I can see ISA rates picking up in a couple of years so will probably sit tight with what I have until better times.

Be very wary if you do find anyone who will guarantee that. It seems like any respectable scammer will give a guarantee which tempts people in regardless of the fact the guarantee is completely worthless.

The whole point of investing is that you are taking a risk hence the better long term returns. You can get around 4% income from a share based fund (equity income fund) and then the capital value can vary over time.

If the main requirement is income does it matter what the capital value is on any particular day? If you need the cash for a specific purpose or date then funds may not be right but if it is long term with no end date then I'd certainly have a proportion in funds as well as the cash.

lisyloo

If only I could find somebody that would guarantee that.

Anything that comes with a guarantee will have the lower return.
So you either have to accept that guarantee and put up with lower than inflation returns or take some risk.
If you diversify then the chances of capital over the long term are low, but you could see some volatlity.

But you simply aren't going to find a higher return with a guarantee.
You should regard anyone offering you that as a scammer.

anna42hmr

agent69 wrote: »

I'm currently getting 3.7% on my cash ISA but the deal runs out in March. For the last 7or 8 years I have put the full allowance in every year.

thats what i have done to, i usually fill the years allowance the first day of the new tax year.

However with rates at the moment, this coming tax year i think I am going to hold tight, leave what i would have been in my current accounts (as have them earning 5%, 4% and 3% so higher then any cash isa) and then if no better isa rates come up, will just pay it into an isa the end of the tax year (i.e mid march - beginning april 2015), that way won't miss the years benefit of tax free allowance for when eventually the rates go up.

I also have my Santander isa maturing in march with aprox 17k in it, however after maturity they will be paying 1.5% variable, which is not much lower than the easy access or 1-2 year fixes at the moment so may leave where it is and keep an eye out for better rates to transfer to.