Opening a brand new ISA - help please

shoegal30

Hi


I am in the fortunate position of being given £10k from my mum and she would like me to invest this into an ISA. This money is a buffer on top of my savings etc so I can tie this money up in a long term investment.

I currently do not have an ISA at all and am looking at opening one and just needed some advice please.

I am looking to invest £5k before the 6th April and a further £5k immediately afterwards.


As I have never held an ISA, I am unsure how long the term should be.

I was thinking as interest rates are still low that I shouldn't commit myself to a long term. However, I did want to get a decent interest rate so was thinking of going with Halifax as they have 2.25% interest for a fixed 2 year term.


What would you do?


Thanks

[Deleted User]

Hi,

as you are thinking long term, I would suggest bunging the lot in a stocks and shares ISA, but then you have to pick a good company to invest in.

Archi_Bald

[Deleted User] wrote:

Hi,

as you are thinking long term, I would suggest bunging the lot in a stocks and shares ISA, but then you have to pick a good company to invest in.

I agree, an S&S ISA would be a much better choice if "long term" means 7-10 years.

Investing in a single company would be enormously high risk. It would be much better to invest in one or more tracker funds, or a balanced portfolio such as Vanguard Lifestrategy.

If "long term" is a lot shorter, some of the current accounts and Regular Savers are a better choice than a cash ISA. We do not know whether the OP is a tax payer but assuming they are a basic rate payer, the worst case is 2.4% net, and best case 4% net in the current accounts.

£4,000 (2 x £2,000) in 5% TSB Plus (launched later this month)
£2,500 in 5% Nationwide Flexdirect (ends after 12 months)
£3,500 in 3% Lloyds/BoS Vantage or TSB Enhance

The monthly minimum deposits can easily be met by cycling £1K through those accounts once a month, when skimming off the interest.

This would be £430 gross, £344 after BR tax per year, compared with £225 in the ISA.

If the OP is a non-tax payer, they can have their interest paid gross by filling in an R85.

EDIT: TSB Press Release: http://www.abouttsb.co.uk/press_and_media/news_releases/12_03_2014_5_per_cent_interest_from_the_bank_acount_thats_not_like_other_bank_accounts.html

xylophone

Remember that the ISA allowance is "use it or lose it" - I know somebody who would be a tax payer were it not for the fact that the income from ISAs built up over a number of years provides a tax free stream of income.

shoegal30

Thanks for the responses everybody.

I am just in the high tax pay bracket unfortunately.

In regards to the time frame, I can leave this investment for 7-10 years. So would you suggest shares is better than an ISA?

I've never looked into shares and wouldn't even know how to go about this.

ColdIron

shoegal30 wrote: »

I am just in the high tax pay bracket unfortunately.

Unrelated to your query, but if you are just into the higher rate band you could increase your pension contribution and get all of that 40% back, just a suggestion

shoegal30

Thanks ColdIron.

I currently don't have a pension but my workplace is about to introduce the Government one - NEST which I am unsure about joining anyway.

Archi_Bald

shoegal30 wrote: »

I am just in the high tax pay bracket unfortunately.

This is a very good reason for joining your employer's pension scheme, or at least start your own pension. This might well get you back to basic rate tax because pension contributions are taken from untaxed income.

If you don't join your employer's pension scheme, you are leaving free money on the table. I can't think of any reason why you would not want to take your employer's contribution to your pension.

shoegal30 wrote: »

In regards to the time frame, I can leave this investment for 7-10 years. So would you suggest shares is better than an ISA?

I've never looked into shares and wouldn't even know how to go about this.

It is not a question of "shares vs ISA". It is a question of investing vs saving, S&S ISA vs cash ISA.

Once you have enough cash in your emergency fund (6-12 months living costs), you should definitely look at getting an S&S ISA. You don't have to buy shares - in fact, you probably shouldn't because shares are high risk. Instead choose a fund that spreads your risk across many companies' shares, and perhaps also has a cash element.

Read this for starters: http://monevator.com/category/investing/passive-investing-investing/

Passive investing is a perfect way to start out, and some people stick with it all their life. If you choose something like the Vanguard Lifestrategy fund, it's all very easy.

shoegal30

Hi Archi


Thanks for taking your time out to reply.


In regards to the pension - I need to start one as I am 31 years old and haven't started my pension. I was unsure if NEST was the best one to go for but you make a good point that I am missing out on 'free money' from my employer by not going with the company pension.


I have also had a read of the link you sent. S&S sounds like a better longer term option I think. As I wasn't expecting this money, I am treating it as 'bonus' so would like it to sit in the background making as much money as possible.


I have looked on the Moneysupermarket website at a couple of S&S investors and so far Alliance Trust and Hargreaves Lansdown are looking worthwhile.

I was looking into a Vanguard scheme - probably 60% shares and 40% bonds. Is this something I would be able through the above brokers?

xylophone

In your position I would join the company scheme.
https://forums.moneysavingexpert.com/discussion/4916625 might be worth a look.

shoegal30

Thanks for the link xylophone - I will probably try and hijack that thread haha.


Dumb question - if I went down the S&S route, would I still have the same tax exemptions as per a standard cash ISA?