MSE News: Budget 2015: ISAs to become fully flexible with withdrawals allowed

iwant2asave

masonic wrote: »

Congratulations for seeing the light, and commiserations for finding yourself in the higher rate tax bracket. You might benefit from contributing more to a pension in order to reduce your tax liability - have you considered that?

Assuming your higher rate tax liability is unavoidable, this is how you could do better than 2% tax free on £15,240. I am assuming here that you are single and have no possibility of opening joint accounts...

TSB Plus (sole): 5% (3% after HRT) on £2k: £60 interest
Nationwide FlexDirect (sole): 5% (3% after HRT) on £2.5k: £75 interest
Lloyds Club (sole): 4% (2.4% after HRT) on £5k: £120 interest
Lloyds monthly saver: 4% (paid gross in 2016/17 tax year using £500 tax free interest allowance) on £400pcm: £103.38 interest
Total: £358.38 (on £12,100 average balance)
(Total if you paid into a pension to reduce your tax liability to BR: £443.58)

vs YB cash ISA 2% on £15,240: £304.48

Obviously, the non-ISA accounts generate their interest using less than £15,240 (and some of it is dripped in to a regular saver that comes with the Lloyds account), so there is the potential to earn even more than £358.38 on the money not yet saved into the accounts above, especially so if you can open joint accounts and deposit more money at the highest rates. There are also 6% regular savers you could use instead of the 4% one, but I went for what is easiest. You could potentially earn more if you were willing to make use of additional/alternative accounts.

Thanks for the information - can I ask what the additional/alternative accounts are please? I am hoping for say £400 interest compared to the £304 that the ISA would give. If possible I would like to open no more than 3 accounts in total.

gwapenut

colsten wrote: »

jimjames, it seems the cash ISA mantra has been completely lost on you. To teach you once and for all, write this 100 times:

I do want a cash ISA even if it pays me four times less interest than other accounts.

If you find this difficult to do, try doing it in a darkened room. As an extra measure, put blindfolds on.

Sorry guys, I have a lot of respect for what you say here and in other threads *, but from masonic's worked example the different is only about 15% (not 400%!)

I know you CAN get better interest than in a single cash ISA - but as a higher rate tax payer, it's an awful lot of hoops to jump through for an extra £50 a year.

As a stoozer, I like to keep my credit searches down too - though I guess with the Lloyds current account it's one-off. Nationwide would be recurring to keep the high interest going year after year.

Clearly I'm not going to cite DotComunity as an example of a higher-rate cash ISA, as all the current accounts give instant access

* Doesn't mean I think you're wrong, just means "each to their own" !

colsten

I think you probably missed the sarcasm. Sorry.

gwapenut

Thought you were talking about 1.5% versus headline "6%" regular saver. The main point of my post though is that £50 is hardly a compelling incentive when future ISA rewards on a larger pot "may" be greater, and a single account is certainly far simpler.

iwant2asave

gwapenut wrote: »

Thought you were talking about 1.5% versus headline "6%" regular saver. The main point of my post though is that £50 is hardly a compelling incentive when future ISA rewards on a larger pot "may" be greater, and a single account is certainly far simpler.

I agree that in fact the time and effort of money saving in general is sometimes not taken into account.

For example I would rather spend a day of my time saving £100 than £50...I think real term amounts in savings should be used a lot more than percentages in order to highlight the real savings, but all too often in savings, the rate is the thing people focus more on rather than the real term returns, time that might be better spent on more effective forms of moneysaving.

masonic

gwapenut wrote: »

Sorry guys, I have a lot of respect for what you say here and in other threads *, but from masonic's worked example the different is only about 15% (not 400%!)

I know you CAN get better interest than in a single cash ISA - but as a higher rate tax payer, it's an awful lot of hoops to jump through for an extra £50 a year.

It's obviously much harder when you are a higher rate taxpayer. A basic rate taxpayer would get 45% more (or £140) than the corresponding ISA from those rates before considering what to do with the £3-4k not used in the current account strategy. The difference for a higher rate taxpayer will be not a great deal better than £50 this tax year, but next tax year they will earn £517 from the same set of accounts assuming the budget changes come into effect as planned, so it depends whether they want to get their ducks in a row now or wait and see what happens.

iwant2asave wrote: »

Thanks for the information - can I ask what the additional/alternative accounts are please? I am hoping for say £400 interest compared to the £304 that the ISA would give. If possible I would like to open no more than 3 accounts in total.

Potentially you could get £411 from just one account - the AgriBank 3 year bond paying 2.7% annually (which will defer the interest payments into the next tax year when they will be tax free). Interest deferral would be your best option and so fixed rate / regular saver accounts may benefit you more than current accounts in the short term, but obviously the current accounts will come back into play in the next tax year and so rather than lock the money away for 3 years, it could make sense to get started with the current accounts some time during this tax year in readiness for the next.

iwant2asave

masonic wrote: »

It's obviously much harder when you are a higher rate taxpayer. A basic rate taxpayer would get 45% more (or £140) than the corresponding ISA from those rates before considering what to do with the £3-4k not used in the current account strategy. The difference for a higher rate taxpayer will be not a great deal better than £50 this tax year, but next tax year they will earn £517 from the same set of accounts assuming the budget changes come into effect as planned, so it depends whether they want to get their ducks in a row now or wait and see what happens.


Potentially you could get £411 from just one account - the AgriBank 3 year bond paying 2.7% annually (which will defer the interest payments into the next tax year when they will be tax free). Interest deferral would be your best option and so fixed rate / regular saver accounts may benefit you more than current accounts in the short term, but obviously the current accounts will come back into play in the next tax year and so rather than lock the money away for 3 years, it could make sense to get started with the current accounts some time during this tax year in readiness for the next.

Yes good point about next year - will just get set up for next year I think. Maybe even the ISA providers will HAVE TO make their rates more competitive to compete when the new rules come in!

Oh and I was tempted by agribank but realised no protection in case they go bust so don't think I'd risk it.

colsten

iwant2asave wrote: »

Maybe even the ISA providers will HAVE TO make their rates more competitive to compete when the new rules come in!

Had you considered that the current account and regular savings account providers will just drop their rates and/or reduce the amounts they pay interest on?

masonic

iwant2asave wrote: »

Yes good point about next year - will just get set up for next year I think. Maybe even the ISA providers will HAVE TO make their rates more competitive to compete when the new rules come in!

The problem is that they don't need our money as they have been able to suck up all of the funding for lending (etc) money. They are all trying to avoid being at the top of the best buy tables, and that is likely to continue beyond next year. That leaves the accounts where the interest rate is manufactured out of a cash incentive (i.e. the current accounts) and the obscure banks who are looking to get a foothold in the market.

Oh and I was tempted by agribank but realised no protection in case they go bust so don't think I'd risk it.

Well, it's the EEA passport scheme, granted, so it could be not quite as good as the FSCS paying out directly. For example, payout could be delayed and might even rely on an EU bailout if they went the way of Greece. So the protection is there, but it would be more hassle should it be needed.

masonic

colsten wrote: »

Had you considered that the current account and regular savings account providers will just drop their rates and/or reduce the amounts they pay interest on?

When you look at the higher rate / lower balance ones, the gross benefit on offer is of the order £100, which is similar to the level of a switching bonus. On the whole this is marketing money and there to lure people in to cross-selling of more profitable products. Whatever value the banks attribute to attracting new customers with the incentives is not going to change, so hopefully their budget for doing so will not change either. Santander seems to be the exception, but I can understand them needing to pay a lot more to attract customers given their past reputation.