Cash ISA vs S&S ISA - How much cash to hold?

jabbahut40

Hi,


With interest rates so low at present are cash ISAs worth holding right now?


At present I have £35K in S&S ISA and £55K in Cash ISAs. I am mid 40s, a higher rate tax payer with no mortgage or debts and have a final salary pension. Been thinking that I would be better off transferring some cash into my S&S ISA which has £8K left for this tax year and am happy to take some risk. Am I holding too much in cash?


Comments welcomed.


Jabba

ColdIron

I'd use my full allowance for this year from unwrapped cash as my first priority regardless of where it gets put

Jsscmm

Assuming that the cash in the cash ISA has not been put in this year (i.e.not this years allowance) if you do a transfer then you will not 'use' your ISA allowance. This is done via a form downloaded from the destination ISA manager (S&S in this example) and then sent back to them. They will contact you donating ISA (cash in this example) and move the money without it impacting on allowances.

If the cash ISA includes money from this year (this years subscription) then life isn't quite that simple.

Going back to your original question, there are 2 things to consider.

Firstly how much 'cushion' do you want? On this forum and others, people suggest 3 months cash, 6 months cash or even longer. This depends on how risk adverse you are and how 'safe' you believe your circumstances / income is.

Secondly, in terms of how much should be in a S&S account, on shares, bonds, funds etc, this depends on your timeline for wanting the money and how much risk you are happy to take. The later is probably the key variable. Over time, shares will generally provide greater returns than cash, but there are some big drops which will take a long time to recover (e.g. 2000, 2008).

Finally, if you are wanting a cash cushion, you may want to consider some higher interest options than cash ISAs. There are downsides, including your time, credit reference look ups and there may be changes in the future which mean you regret not having the money in the tax wrapper an ISA provides, but having cash at 5% (which works out at 3% for HRT) is a higher return that a 1.5% ISA. Even a 3% account is slightly better.

HTH

brendon

You are almost certainly holding too much cash. Unless you have a specific reason to hold so much, I would have no more than £10k in cash. For your S&S ISA, a 60% stock and 40% bond split might be a good idea (£50k in stock, £30k in bonds.), in low cost diversified index tracking funds.

atush

I would say hold onto enough in cash to fund 6 months outgoings.

and as a HRTaxpayer consider a personal pension for some of your cash. AS it will build a DC pot you can use from age 55, and it would help you to retire earlier than your DB scheme age w/o reducing your DB pension. this is worth doing if just to take you out of HRTax and get 40% relief.

If you feel 100% sure you wont retire early, and are using your current pension to take you out of HRTax, then go ahead and shift some cash isa money into S&Sisas.

If you are already retired/retiring, I would hold onto 2 years expenditure in cash. so that you are not forced to sell investments during a downturn.

jabbahut40

Appreciate all the responses. I've decided to move some cash to fill my remaining S&S ISA for this year. Thanks All.


Jabba

DesG

Any cash that is already in an ISA doesn't use any of your current year allowance if you transfer it using the correct transfer procedure.

You could transfer over all 55K and still have your remaining 8K ISA allowance left for this year.

redmalc

I am pretty nervous at the moment,sixty years of age with 100K in cash Isa,s and 110 K in pretty high risk funds,looking to take a bit of shelter but not sure what to do !?!!

jimjames

redmalc wrote: »

I am pretty nervous at the moment,sixty years of age with 100K in cash Isa,s and 110 K in pretty high risk funds,looking to take a bit of shelter but not sure what to do !?!!

How about moving into lower risk funds? There are ones at all points on the risk scale available so no need to cash out high risk ones just to reduce risk.

kangoora

jimjames wrote: »

How about moving into lower risk funds? There are ones at all points on the risk scale available so no need to cash out high risk ones just to reduce risk.

53 here but looking to retire sometime in the next 5 years (3-4 hopefully)

I did this a few months ago, moved from 100% equities to around 55% now.

Put 10% each into separate property, bonds & gilts funds and 15% into Absolute Returns fund. No guarantees there obviously, but has me sleeping a little easier at night.

I've done my retirement calculations based on 3% (plus inflation) growth. On the plus side, if everything tanks (hopefully unlikely) I can just groan and work an extra year or two - really hope this won't be needed

kidmugsy

atush wrote: »

and as a HRTaxpayer consider a personal pension for some of your cash... this is worth doing if just to take you out of HRTax and get 40% relief.

Use the 40% relief while it is still available. It may not survive the next government, of whatever colour.