MSE News: ISAs become bigger tax-free NISAs today – so what's changed?

Archi_Bald

If you have more than £15,000 in savings, and keep and/or grow them over many years, or expect a big inheritance at some stage, a tax shelter is very desirable because you quickly run out of high interest paying current accounts. How many people does this apply to, though?

The vast majority of savers are basic rate tax payers and it will take them several years to save £15,000. The new ISA limit doesn't magically give them more money to save. The average market value of cash ISAs according to the latest published statistics is £7,620, and some 48% of all cash ISAs contain less than £3,000. Only 16% of cash ISA holders have more than £15,000 in their cash ISAs.

So at least 48% of all cash ISA savers - but probably a lot more - gain absolutely nothing from having a cash ISA, and would do miles better with a couple of TSB Plus accounts.

It's pretty heartbreaking to see people going out of their way to put a couple of thousand into an ISA, just so that they get the tick in the ISA box.

Pincher

matttye wrote: »

One benefit I can see to NISAs is that even though the rates are abysmal, they stay tax free year after year. So if, in the future, the rates improve, you'll still have a heap of tax free savings.

Maybe the short term cost is worth the long term gains?

Not sure how likely it is that NISA rates will ever beat current account rates though...

Nationwide Web ISA Issue 4 is paying 1.5%. Big amount built-up over the years.


Nationwide Flexclusive Issue 6 is paying 1.75%, but only to new money, with transfer-in from existing cash ISA not allowed.


Fortunately, First Direct Cash ISA is paying 2.0% for £40k+, and still accepts transfer-in, but historically it's not competitive.
When interest rate starts going up, I fear no ISA provider will accept transfer-in any more, and £40k+ will be languishing in a poor paying ISA forever. Unless George Osborne increases the limit to £40k a year, so I can withdraw it all and pay into yet another new NISA.

jimjames

matttye wrote: »

One benefit I can see to NISAs is that even though the rates are abysmal, they stay tax free year after year. So if, in the future, the rates improve, you'll still have a heap of tax free savings.

Maybe the short term cost is worth the long term gains?

Not sure how likely it is that NISA rates will ever beat current account rates though...

It's only worth the short term pain if you have very large amounts to save. If under £5k the no point in ISAs as you can move the money at any point if rates improve.

Archi_Bald

Pincher wrote: »

When interest rate starts going up, I fear no ISA provider will accept transfer-in any more, and £40k+ will be languishing in a poor paying ISA forever.

There is always the S&S ISA alternative - no restrictions on how much you can transfer in. S&S ISAs should be the default choice for anyone who is looking at the longer term, and who has got their emergency cash funds sorted out.

There is a largely unjustified fear of S&S ISAs, mainly due to lack of understanding of investments. There are books and websites to learn about investing, there are IFAs that can provide (paid for) advice. There was a great new article on monevator today, showing how simple an S&S ISA can be - 327 seconds to a perfect £15,000 NISA investment portfolio.

Pincher

By the way, you don't have to have £40k to get the 2.0% rate from First Direct.


I can get £15k 0% Balance Transfer from MBNA with 2% Fee for one year. Alternatively, get a ~24 months deal for 3% Fee from Barclaycard. Transfer in £25k from an old ISA (the one you made earlier in the previous four years). Add the £15k to use up this years allowance. Voila! £40k!


Roughly, you pay 2% for the BT money, but the First Direct Cash ISA pays you 2% tax free, so it roughly balances out. The good thing is, the FD cash ISA pays interest once a month, so you can use it to pay the credit card minimum if you are really tight on cash flow.


The point of doing this is, the £25k that was getting 1.5% in a Nationwide Web ISA is now getting 2%!

crispy_chris

It appears all banks are still calling them ISAs, NISA seems to describe the new regulations rather than the products themselves

phillw

Archi_Bald wrote: »

There is always the S&S ISA alternative - no restrictions on how much you can transfer in. S&S ISAs should be the default choice for anyone who is looking at the longer term, and who has got their emergency cash funds sorted out.

I was making about 10% a year on mine until I had to close it to focus on the short term. I haven't followed the funds I invested in, because I want to think that I got out at the right time (about a year ago).

It's more risk and more effort to manage that risk, but if you're here then you should be willing to put in the work to make the most of your money.

If you are in the position of having a mortgage interest rate that is lower than your savings rate then you should think carefully before tying your money up in the medium to long term as the situation is likely to reverse in the short to medium term.

roddydogs

jimjames wrote: »

Yet again an mse article hyping up ISAs with no mention of other options that are way better for someone with average savings.

Why get 1.5% or less tax free when you can get 5% taxed. It really seems like not paying tax is more important to mse than getting the best return on your money.

Very disappointed....

But you can only get 5% taxed on small amounts, cant you?

colsten

roddydogs wrote: »

But you can only get 5% taxed on small amounts, cant you?

Small amounts is what the majority of people have. Still, basic rate tax payers can get more than they can presently get more interest in current accounts for about £46,000.

colsten

crispy_chris wrote: »

It appears all banks are still calling them ISAs, NISA seems to describe the new regulations rather than the products themselves

You are right, the majority just refer to ISAs. Which seems to be the sensible thing to do when you think about it.

As all the current rules now apply to all ISAs, there is really no need to distinguish between ISAs from before July 1 and the current ones.

It would cost ISA providers as well as the financial advisor industry an enormous amount of money to figure out where to add, and then to add, an N in all their existing ISA literature and electronic documents, for zero benefit to anyone.