Cash ISA Newbie!

mzltv

Hi all,

So I've read the ISA guide and I'm still completely clueless as to how to go about deciding which ISA I should get.

I'm looking to put £200 into it monthly and really just want the best deal I can get out of it.

Are there any easily recommended UK cash ISA's that I should be looking at, for someone who doesn't know much about them? I've got around £2000 to put into the ISA if it requires a hefty opening amount...

Thanks in advance!

jimjames

Have you already used the high interest current accounts or are you not able to use for some other reason?

Archi_Bald

If your total contribution is £200 / mth, there is absolutely no point in putting the money into a cash ISA as the interest rates for ISAs are terrible, and you are nowhere near the ISA allowance. At £2,400 a year, it will take 6 years before you need to think about putting the money into an ISA.

You will get a lot more interest in a variety of current accounts. E.g. start with 2 TSB Plus accounts. They will take £2,000 each, so should last you almost two years before you need to look for other repositories.

If the ISA rates will beat the current account rates, or if you have substantially more money to save, before the 6 years are up, you can easily just move your savings to an ISA.

veryintrigued

Archi_Bald wrote: »

If your total contribution is £200 / mth, there is absolutely no point in putting the money into a cash ISA.

Unless the poster is close to a Nottingham Building Society branch where they are still offering a 4% regular saver.

They could put £1250 today (May) and then £750 next week (June) and then £200 from July onwards.

mzltv

jimjames wrote: »

Have you already used the high interest current accounts or are you not able to use for some other reason?

Erm, I'm not really aware of high-interest current accounts. Does that basically mean a bank account that has a high-yield interest and isn't a cash ISA? It's confusing to me because all I can tell is that these two instruments (Current Account/Cash ISA) are doing the exact same thing and generating interest... Just one has a higher percent.

mzltv

veryintrigued wrote: »

Unless the poster is close to a Nottingham Building Society branch where they are still offering a 4% regular saver.

I don't believe I am near a NBS Branch.

mzltv

Archi_Bald wrote: »

If your total contribution is £200 / mth, there is absolutely no point in putting the money into a cash ISA as the interest rates for ISAs are terrible, and you are nowhere near the ISA allowance. At £2,400 a year, it will take 6 years before you need to think about putting the money into an ISA.

So my understanding of this is to use a Current Account to get a better interest rate, and once I've a large sum of money, to put that into an ISA where it will be used more effectively?

innovate

There are major differences between cash ISAs and current accounts. The banks haven't designed current accounts to be used as savings accounts but since some of them pay better interest than ISAs, many people opt for keeping their short term savings and emergency funds in current accounts. Interest in current accounts is subject to an automatic 20% tax. I.e. if you earned £100 interest, you will only be paid £80. This is the same for normal savings accounts.

Cash ISAs are special savings accounts, where interest is paid without tax deduction. HMRC set limits to how much new money you can put into an ISA each financial year - for 2014-15 the allowance is £15,000, and for subsequent years, the allowance will probably be the same or higher (assuming the Chancellor will continue to support ISAs).

On thing ISAs and current accounts have in common is that you need to keep an eye on the interest rate since it will almost certainly change over time, and probably not to your advantage. In this case, it's time to move the funds.

If you have more than £15K to save this year and in future years, an ISA might make sense, deposits the dreadful interest rates you can get for cash ISAs. From the figures you have posted it sounds as if you would be far below that value, so you might as well maximise your interest rate in current accounts, several of which will pay significantly higher rates than ISAs.

innovate

mzltv wrote: »

So my understanding of this is to use a Current Account to get a better interest rate, and once I've a large sum of money, to put that into an ISA where it will be used more effectively?

Essentially, yes. But unless you have more than £15,000 and cash ISA rates improve significantly, some current accounts and/or Regular Savers are for now better places for your money because you get paid more interest in them.