Saving with Current Accounts

raj94

Hi all,

So I've been checking out this article... Get 5 % on your ISA Money- blog.moneysavingexpert.com/2014/04/07/get-5-interest-on-your-isa-money

and was just wondering why it is important to transfer all my funds 1 week before the next ISA deadline.

Does it mean I won't get taxed? Does it mean my current account interest will be lower?

Thanks.

jimjames

raj94 wrote: »

was just wondering why it is important to transfer all my funds 1 week before the next ISA deadline.
Thanks.

In a nutshell it isn't.

MSE seem to have an obsession with cash ISAs when for most people at the moment they are not the best way to save at all.

MSE's idea is that you have to use your allowance every year. That might make sense if you have £50k of cash you want to put into ISAs to keep tax free but when the average UK savings balance is under £2000 there is absolutely no reason to use your ISA allowance until rates improve and you can get better inside an ISA.

All the time you can get better rates outside an ISA and have under £15k you should make use of them regardless of what MSE say about use it or lose for your cash ISA.

5% in a current account or 1% in a cash ISA, I know which I'm doing with my emergency money. I do still use an ISA but a S&S one not cash.

Consumerist

raj94 wrote: »

. . . and was just wondering why it is important to transfer all my funds 1 week before the next ISA deadline.

I agree with jimjames but if you want to make sure you use your ISA allowance each year, the name of the game while ISA rates are so low, is to get a better rate outside an ISA until the near the end of the tax year when you can then put the cash into an ISA.

This way you are getting the best return available to you at the moment and also protecting your savings against future tax once you put it into an ISA.

Ifts

jimjames wrote: »

5% in a current account or 1% in a cash ISA, I know which I'm doing with my emergency money. I do still use an ISA but a S&S one not cash.

I use both cash and S&S ISA -

Have a cash ISA @5%, nice to get ~£240 per month on that risk/tax free.

But last 3 years I have been using all of my ISA allowance in a S&S ISA.

innovate

Ifts wrote: »

Have a cash ISA @5%,.

Yeah, except you couldn't get one of these for many years. It would be even nicer to have a cash ISA @8%, or however many % you can dream if.

jimjames

Consumerist wrote: »

I agree with jimjames but if you want to make sure you use your ISA allowance each year, the name of the game while ISA rates are so low, is to get a better rate outside an ISA until the near the end of the tax year when you can then put the cash into an ISA.

This way you are getting the best return available to you at the moment and also protecting your savings against future tax once you put it into an ISA.

That's fine but it's only relevant if you are maxing out your ISAs. If you are only putting a few thousand into one then it makes no difference whether you do it this year or next or some future date.

The highly misleading advice given officially here is to use your ISA at all costs. For most people that is not the best option to make most money as they can put their savings into an ISA when rates increase and make the most of the better rates outside in the meantime.

Ifts

innovate wrote: »

Yeah, except you couldn't get one of these for many years. It would be even nicer to have a cash ISA @8%, or however many % you can dream if.

I got the 5% in 4/2011, fortunately it runs till 4/2016.

Prior to that I fixed in 4/2010 @4% with MS Money till 4/2013, but a year later in 4/2011 (paid MS Money the £100 early access penalty) I transfered it to BM Savings @5% because it had a better rate but more importantly the rate was fixed till 4/2016.

Consumerist

jimjames wrote: »

That's fine but it's only relevant if you are maxing out your ISAs. If you are only putting a few thousand into one then it makes no difference whether you do it this year or next or some future date.

A good point.

An interesting corollary of the new £15K allowance is that smaller savers will have more scope to withdraw money from a previous year's ISA and open a new one with the cash where transfers-in aren't allowed.

bowlhead99

Consumerist wrote: »

An interesting corollary of the new £15K allowance is that smaller savers will have more scope to withdraw money from a previous year's ISA and open a new one with the cash where transfers-in aren't allowed.

True- it gives a consumer without too much of an existing pot, more flexibility as they now don't have to restrict themselves to the 'transfers in: allowed' providers who would offer lower rates. Those providers who did allow transfers in would typically offer lower rates unless they were really on a customer acquisition spending spree, because paying above market rate for 50k is much more expensive than paying above market rate for 5k.

However, previously those providers who didn't accept transfers in were basically saying, sure, I'll give you a nice high rate for your current year ISA, because the cost to my marketing budget is only:

I]number of customers attracted[/I

times

I]amount they're each limited to depositing in one year: it'll be £5k or less on average[/I

times

I]excess interest rate over and above what I'd be paying on the average of my customers' account balances, from Funding for Lending or other sources of finance[/I.

If the government changes the game so that the amount customers are limited to investing in one year doubles or triples, and the amount the average customer might deposit is going to increase, then it costs them more to offer these promotional "maximum of one year's allowance" ISAs.

So, for a given marketing campaign they would have to lower the rates or cut off the number of customers they're trying to attract, to avoid blowing their budgets.

Consumerist

bowlhead99 wrote: »

. . . If the government changes the game so that the amount customers are limited to investing in one year doubles or triples, and the amount the average customer might deposit is going to increase, then it costs them more to offer these promotional "maximum of one year's allowance" ISAs.

So, for a given marketing campaign they would have to lower the rates or cut off the number of customers they're trying to attract, to avoid blowing their budgets.

So what?

What percentage of the population will be able to save £15K per year anyway?

There has always been the option for the smaller saver to withdraw funds from previous years' ISAs to open a new one; the new allowance just extends the availability of it.

ColdIron

Consumerist wrote: »

What percentage of the population will be able to save £15K per year anyway?

Probably larger than you think. Not everyone is starting out on their savings career and many people may have considerable sums that they are trying to shelter from tax, and even at £15K a year this could take quite some time. Then there are people that have come into a lump sum from downsizing, inheritance etc