I don't see the point in ISA

Milarky

jimjames wrote: »

An article on The guardian shows16 million savers have only a cash Isa, with an average value of £7,620

http://www.theguardian.com/money/2014/apr/27/cash-isa-rates-slashed-santander

http://thinkexist.com/quotation/just-think-of-how-stupid-the-average-person-is/348028.html

ipa20

I'm of the same opinion of the OP. Have about £25k currently in an ISA that's recently matured and now earning just 1.5%.

As I'm not yet a homeowner ultimately this money will likely be spent on a deposit within 3-5 years I'd have thought.

Therefore I'm debating splitting it all into various current accounts and earning 2.4% - 4% interest (after tax) on the whole balance (Nationwide 2500, TSB 2000, Lloyds 5000 & Santander 15500).

Is slightly scary losing the tax free status of it all, but as OP says, if in 12-18 months the rates are higher again and I don't plan to be house buying yet, it would only take 2 years to reinvest this all in ISAs again and be tax free.

Aside from the hassle of opening multiple accounts and setting up DD to shift money around, I can't see the benefit to me keeping 25k in a Cash ISA at present?

KrytenIceCubeHead

S&S ISAs shouldn't be overlooked... I saved in just cash ISAs for 5 years until deciding this year to move as much as possible into stocks & shares. With 10+ years to retirement, the returns on shares ISAs should be much better, the caveat of course being your investment can go down.

darkvader

Keeping a short term view plus the low interest over the past few years, everyone wonders why saving in ISAs make a difference.

But things change over time and as markets are cyclic in nature, interest rates will go north in 5 or 10 years. As the whole idea of saving is for short term AS WELL AS long term then you must think twice. Once rates go back to 8% or 10% and the govt increases tax on interest to 2% or 3%, all those who saved religiously in ISAs over the years will make a killing compared to those who dint.

ISA is merely a means to an end and may not be right for everyone. Its even more confusing now when rates are so low. It may be best to put long term savings in ISAs, no need to max it our every year, while keeping short term savings in higher rate normal saver accounts.

A day will come, for those saving smaller amounts and those maxing it out, when the tax free interest on a small or a large pot of money in an ISA earning interest thats tax free will make you smile and be happy you had the common sense to keep something aside in an ISA. I am following this principle and pretty sure I will reap the rewards down the line

To end with a simple example, a person saving £100k over 20 years in ISA versus a person who doesnt and assuming just a single year where you get 10% interest while a regular saver pays 8% or maybe the tax is high at 3% then the return difference is significant : £10000 a year interest in an ISA versus £7000 to £8000 in a normal savings account - food for thought no? What if the taxes are even higher? What if income tax slabs get higher? Who knows?

DV

bsms1147

Your points are sound, though I doubt the high interest rates you talk about.

But other things must be taken into account; if you are planning on using the funds in the next few years, then you will not be taking a long-term approach, and would be best to maximise your interest. For most people that means neglecting ISAs and using current accounts instead.

And until the end of the current tax year, using current accounts to maximise benefits is the smartest option regardless. There is no need to rush to get money into an ISA; they will still be there come the end of the tax year, when you can safely store the money away for the long-term view should you so wish.

Alter_ego

OK folks, How about a suggestion for my situation. I am 72 yrs, so long term is not really for me. I have a Coventry reward instant access ISA the balance is around 35k. Interest 2.5%. I don't want the hassle of moving money around regularly for marginal gains in interest,
I already have a Nationwide interest bearing current account which I maintain at just above their high interest level.
Any ideas?

darkvader

Alter_ego wrote: »

OK folks, How about a suggestion for my situation. I am 72 yrs, so long term is not really for me. I have a Coventry reward instant access ISA the balance is around 35k. Interest 2.5%. I don't want the hassle of moving money around regularly for marginal gains in interest,
I already have a Nationwide interest bearing current account which I maintain at just above their high interest level.
Any ideas?

Nothing to beat Santander 123 account. You get 3% for up to £20000, move some direct debits over to get cash back and presto, best deal in the current market

For the remaining £15k you will need to split across a few accounts to get anywhere near 2.5% unfortunately. If you dont need the £15k then push it into the well known dividend paying equities or trusts to get an average of 5% a year and presto again! Although your capital is at risk with the vagaries of the wonderful markets!

DV

xylophone

Minimum hassle to open 2 TSB Classic Plus and set up a standing order for £500 on each, on the same day, from one to the other?

Consider transferring part of the cash isa into a stocks and shares isa, investing for income, if that is your requirement?

Example here http://www.hl.co.uk/news/articles/income-investing-receive-1000-per-annum-tax-free-from-isas

Alter_ego

darkvader wrote: »

Nothing to beat Santander 123 account. You get 3% for up to £20000, move some direct debits over to get cash back and presto, best deal in the current market

For the remaining £15k you will need to split across a few accounts to get anywhere near 2.5% unfortunately. If you dont need the £15k then push it into the well known dividend paying equities or trusts to get an average of 5% a year and presto again! Although your capital is at risk with the vagaries of the wonderful markets!

DV

Thanks, but surely 3% after tax would be 2.4% ?

Archi_Bald

darkvader wrote: »

But things change over time and as markets are cyclic in nature, interest rates will go north in 5 or 10 years. As the whole idea of saving is for short term AS WELL AS long term then you must think twice. Once rates go back to 8% or 10% and the govt increases tax on interest to 2% or 3%, all those who saved religiously in ISAs over the years will make a killing compared to those who dint.

Religiously saving into cash ISAs over many years, which is what you seem to be advocating, is one way of putting some money aside but most likely not the best way.

For short term needs, saving into ISAs seems completely wrong whilst their rates aren't even half of what you can get in current accounts. Particularly now that the allowance will be £15,000 this year, and when 16 million ISA savers have an average of £7,620 in their ISAs.

For medium to long term, investing inside S&S ISAs is a better way than sticking with cash ISAs that barely keep up with inflation. Interesting article on this has just been published by the Telegraph.

I also doubt your savings interest rate predictions. The entire country would be in terrible shape if savings interest rates rocketed to 8 to 10% - - nobody could afford mortgages, loans, overdrafts, businesses would find investing nigh on impossible, and inflation would spin out of control.