Opening Cash and S&S ISAs

Samsonite1

Hi,

I want to open an ISA and also want to invest in some stocks and shares. I am not sure the best option to go for because apparently you can get some mixed accounts via one provider, but I have not found these easy to find.

Is it better to just open one of each type of ISA with whichever providers seem best for each type?

Thanks!

S

jimjames

I think its safe to say you are best off with different providers.

You are probably even better off ignoring cash ISAs completely and using high interest current accounts.

Samsonite1

Does the sentiment around high interest current accounts remain the same for high tax rate payers?

colsten

For at least some of your cash, yes.

Depending on your situation and requirements, additional pension contributions might get you back into basic rate territory.

Samsonite1

Well I haven't worked it out exactly but I would have increase my pension contributions to 45% or so to get basic so that's why I am looking at some other investments so that I have something more accessible in addition to pension. Not sure if that makes much sense. I am new to investing really.!

BLB53

Generally, banks or building soc. better for cash isa but for S&S definitely avoid. DIY with one of the low cost providers would be the best for most small investors and select a few tracker funds or investment trusts.

For more info on passive investing via trackers and also selecting a broker look at https://www.monevator.com and for more active approach with shares and/or inv. trusts have a look at https://www.diyinvestoruk.blogspot.co.uk

colsten

BLB53 wrote: »

Generally, banks or building soc. better for cash isa but for S&S definitely avoid

Equally, avoid the investment platforms for any cash ISA. Even after July 1, when some of them will be offering what they call a super ISA, you will get more interest with a traditional cash ISA provider.

If you can afford to, you should be avoiding cash ISAs altogether though, and instead concentrate on S&S ISAs.

You can keep around £9K emergency cash in current accounts that will pay you more than any cash ISA. Check Lloyds and TSB.

jimjames

Samsonite1 wrote: »

Does the sentiment around high interest current accounts remain the same for high tax rate payers?

Depends on the ISA rate you can get.

Even after tax 5% in a current account is better than an ISA at 0.75% so unless you are determined to not pay any tax then you're better off helping the chancellor cut the deficit paying tax on interest:)

Samsonite1

jimjames wrote: »

Even after tax 5% in a current account is better than an ISA at 0.75% so unless you are determined to not pay any tax then you're better off helping the chancellor cut the deficit paying tax on interest:)

Well I help the chancellor plenty thanks! Thanks to taxes and student loans, any pay increase or bonus is decimated for the benefit of the country, so forgive me for at least attempting to put some money aside for me and my family, especially as the childcare allowance was halved in the past year, just as my first child arrived...

But anyway, back on-topic - I can't see any current accounts that work out that well over a year or more. It seems as though 5% current accounts only allow a max balance of around £2,000 which yields annual interest of £58 after higher tax rate. At least with an ISA I can put in a lot more and basically get 5/6 times more interest in a year (as far as I can tell)...

There are so many options out there - if I pay tax, I may go for P2P with much higher rates an no limits, even though you have to be more careful...

Archi_Bald

How do you get 5 or 6 times more interest in an ISA? Except, perhaps, if you gift some of your money to your kid - there is a 6% JISA at Halifax but only if a parent or a guardian also has a cash ISA there, and it's £4K max a year. Also, nothing stops you to start a SIPP for your little one - though you don't get tax relief for it, and obviously, the money is locked up for a few decades.

In the meantime, there are places that pay more than any adult ISA:

2 x £2,000 in TSB Plus @ 5% = £4K @ 3% net. If you have a partner, they could have another 2 of these accounts, plus you can have one joint account. So there's up to £10K at double the current ISA rates, and there is no end date to the 5%.

1 x £5,000 in Club Lloyds @ 4% = £5K at 2.4% net. Still a lot more than you get in a cash ISA, and again, if you have a partner, you can have a total of 3 of those accounts between you. That's a potential for £15K.

So we have easily found non-ISA homes for £9K, possibly even £25K. On top of that, there are 4% and 6% Regular Savings accounts that you could feed from a 3% current account. A total of £950 a month, £11,400 a year, could be channeled into these per person.

It doesn't really make much sense to go hell-for-leather for a tax shelter if you can make more money even after paying the full tax.

The only reason for using up your ISA allowance is if you expect to be able to max it out every year. You could still do better IMO if you kept a stack of emergency / short to medium term spending cash in current accounts, and invested the rest into S&S ISAs or even pensions, for yourself and your partner, and perhaps also your child.

Regarding P2P: don't believe the Marketing catchphrases. Look around on forums to find the realistic interest rates. I would suggest it will be quite hard to achieve 4 or 5%.

jimjames

Samsonite1 wrote: »

Well I help the chancellor plenty thanks! Thanks to taxes and student loans, any pay increase or bonus is decimated for the benefit of the country, so forgive me for at least attempting to put some money aside for me and my family, especially as the childcare allowance was halved in the past year, just as my first child arrived...

But anyway, back on-topic - I can't see any current accounts that work out that well over a year or more. It seems as though 5% current accounts only allow a max balance of around £2,000 which yields annual interest of £58 after higher tax rate. At least with an ISA I can put in a lot more and basically get 5/6 times more interest in a year (as far as I can tell)...

There are so many options out there - if I pay tax, I may go for P2P with much higher rates an no limits, even though you have to be more careful...

That's your choice. Personally I just go for the account that gives the best return regardless of it's tax status. My reply wasn't having a go about paying/not paying tax, more that you shouldn't get hung up about things being tax free if that doesn't give any benefit.

If you really want to max things out then why not look to put more into the S&S ISA side? That's one ISA that is worth doing.