When to pay into a NISA

Muttontop

Hi, I'm new to these forums, can somebody help. Now that the new tax year has well and truly started is it wise to put new money into a NISA now or wait until the new tax year starts next year? So far this tax year I have not invested any money in a NISA but have just come into some money (about £6000) and am wondering what is my best option.
Cheers

bowlhead99

You can put up to £15000 in an ISA now and another £15000 between April 2015 to April 2016 and then another £15000 between April 16 to April 17 and so on. If you're unlikely to be able to use up these limits with your future income there is no hurry to go and use up the current year allowance. It's perfectly reasonable to look at the rates on offer in cash ISAs at the moment and decide they are not worth bothering with.

A typical ISA might pay you 1-1.5% unless you commit to locking it away for a long period. If you ignored ISAs and put the 6k in a Santander 123 current account, it would be earning 3% before tax which is 2.4% net to a basic taxpayer or 1.8% for a higher rate taxpayer.

ISAs don't get close to that rate, and Santander is not even the highest paying current account (but current accounts have limits on how much they will pay interest on, so you'd need more than one account to make the best use of £6k if you chose to use the various other banks paying 4 or 5% gross on their current accounts).

In the old days when you could only put small amounts in cash ISAs it was a bit more important to use up your annual allowance before you lost it, if you were the sort of person who was going to be able to save away 6k every year and didn't want to miss out on an allowance for the long term. But as the limit is now £15k a year, most people can simply take cash out of existing low-interest ISA products, save it more wisely in a non-ISA account for now, and put it back in some future year when ISA accounts are more competitive.

Steve_xx

If you don't invest in this years ISA during this tax year you will lose the ability to do so.


However, in your particular case where you have just 6k to save then you would be better off opening two TSB current accounts and putting 2k in each to give you a return of 5%. If you're part of a couple then you might consider opening a third TSB account on a joint basis and that would pay a further 5% on a 2k balance.

eskbanker

Muttontop wrote: »

Now that the new tax year has well and truly started

No kidding, within a few days we'll be closer to the start of the next one than the start of the current one!

Muttontop wrote: »

So far this tax year I have not invested any money in a NISA but have just come into some money (about £6000) and am wondering what is my best option.

Just in case of any confusion, 'investing' is usually used to refer to non-cash products, i.e. funds, shares, etc, whereas putting money in cash products such as savings accounts is generally 'saving'. In the context of ISAs, there is a clearly defined choice to be made between cash ISAs and stocks & shares ISAs, so you'd save in the former or invest via the latter.

jimjames

Steve_xx wrote: »

If you don't invest in this years ISA during this tax year you will lose the ability to do so.

For £6000 it's of no consequence if the OP "loses" the fantastic option to contribute to an ISA this tax year.

For that amoutn 2x TSB and 1x Nationwide accounts will give 5% return per year. Until an ISA beats that it's not worth using.

Of course as above if the OP is referring to investment ISAs then those are worthwhile but are not suitable for money needed in next few years.

delmar39

I think jimjames sums it up nicely - 2 x TSB Classic accounts (£4k), Nationwide Flex Direct (up to £2.5K) will get you 5% (4% after tax). I have a Nationwide regular saver ISA paying 2.59%, but this only lets me put £1,250 per month in and does not come close to the 4% on aforementioned accounts. I have TSB and Nationwide Flex Direct accounts. That should be your problem solved.

gkerr4

i don't really agree with the above to be honest - i still think if best practice to gain the tax free shelter for your funds "in-year" - its a longer term game i guess - you either use the tax free allowance or lose it - who knows how much you will have to save next year or what interest rates will go in the course of time.

The return on £6000 by messing about with various current accounts, i'd suggest, is barely worth the opportunity cost to most people. It'll maybe 'save' you the cost of a small latte from starbucks once a month.

Daz2009

Don't you have to pay in regular amounts every month to these Santander,TSB etc accounts ?

Or does 1 lump sum count ?

p00hsticks

Daz2009 wrote: »

Don't you have to pay in regular amounts every month to these Santander,TSB etc accounts ?

Yes - but if you don't have that regular input elsewhere it's only a couple of minutes work each month at most to log on online, do a faster payment out to another account and then move it straight back in again to meet the funding requirements. A lot also want to see 1 or 2 direct debits set up, but there are also ways to meet these very cheaply if need be (although given that the Santander 123 account also gives cashback on things like broadbank and utility payments its worthwhile to have thes set up anyhow).

Daz2009 wrote: »

Or does 1 lump sum count ?

No

bowlhead99

gkerr4 wrote: »

i don't really agree with the above to be honest - i still think if best practice to gain the tax free shelter for your funds "in-year" - its a longer term game i guess - you either use the tax free allowance or lose it - who knows how much you will have to save next year or what interest rates will go in the course of time.

The return on £6000 by messing about with various current accounts, i'd suggest, is barely worth the opportunity cost to most people. It'll maybe 'save' you the cost of a small latte from starbucks once a month.

I take your point and am not one of those who advocates opening billions of accounts to take care of less than 10k cash. Nor am I one of those people who is absolutely outraged that on MSE's savings pages they scandalously dare to suggest that people first consider saving tax via ISAs (clearly sound advice on a free webpage that might not be expected to be updated every second to account for latest market conditions) and then it's a full two lines later that MSE deign to mention that the best rates may sometimes be obtainable from current accounts and give some links. I get bored to tears reading that same criticism on the forum day after day... I digress

However, for someone who hasn't got around to being able to put away anything this year, and suddenly has a "windfall" coming into some money that gives them a lump sum of £6k, this doesn't seem like the kind of person who needs to use it or lose it because they will find another £45k of ISA allowance available to them in the next three years. £150k a decade.

Personally I couldn't be bothered with pushing the limits of all the T&Cs to get £10k across Nationwide, 2 TSBs and Lloyds and a Halifax - and juggle it around again when the offers expire, even though I know it makes economic sense. I just largely keep to one main account. But the opportunity shouldn't be entirely ignored as even on OP's £6k, 5% is £240 net to a basic taxpayer while 1.5% in an ISA is £90. With £150 extra free money, that's more than 12 small lattes a year. You could buy something from Poundland every single Monday, Wednesday, Friday every week of the year apart from Easter and Christmas week.

Of course when you're a 40% or 60% taxpayer the benefit is somewhat smaller and if £6k cash is a small part of your overall portfolio, maximising interest through current accounts isn't going to be top priority. Still, look after the pennies etc.

Steve_xx

bowlhead99 wrote: »

I take your point and am not one of those who advocates opening billions of accounts to take care of less than 10k cash. Nor am I one of those people who is absolutely outraged that on MSE's savings pages they scandalously dare to suggest that people first consider saving tax via ISAs (clearly sound advice on a free webpage that might not be expected to be updated every second to account for latest market conditions) and then it's a full two lines later that MSE deign to mention that the best rates may sometimes be obtainable from current accounts and give some links. I get bored to tears reading that same criticism on the forum day after day... I digress

However, for someone who hasn't got around to being able to put away anything this year, and suddenly has a "windfall" coming into some money that gives them a lump sum of £6k, this doesn't seem like the kind of person who needs to use it or lose it because they will find another £45k of ISA allowance available to them in the next three years. £150k a decade.

Personally I couldn't be bothered with pushing the limits of all the T&Cs to get £10k across Nationwide, 2 TSBs and Lloyds and a Halifax - and juggle it around again when the offers expire, even though I know it makes economic sense. I just largely keep to one main account. But the opportunity shouldn't be entirely ignored as even on OP's £6k, 5% is £240 net to a basic taxpayer while 1.5% in an ISA is £90. With £150 extra free money, that's more than 12 small lattes a year. You could buy something from Poundland every single Monday, Wednesday, Friday every week of the year apart from Easter and Christmas week.

Of course when you're a 40% or 60% taxpayer the benefit is somewhat smaller and if £6k cash is a small part of your overall portfolio, maximising interest through current accounts isn't going to be top priority. Still, look after the pennies etc.

In reality, the best way to go with the 6k right now is to put it into TSB or TSB/Nationwide as suggested. Then come next March, before the current tax year ends you would take a view of the situation, see what's available then ISA wise, and shift it to an ISA if it suits the OP's particular set of circumstances going forward.