Is the cash ISA dead?

KGriff

jimjames wrote: »

The thing is, long term over 20 years holding large amounts of cash doesn't make sense either.

Short term get best rates, long term use S&S ISAs so either way I can't see how a cash ISA fits in.

I think you are forgetting the time when the risk free cash ISA's were paying 5% interest, tax free, whilst stocks, shares and managed funds were taking a terrific tumble in the financial crisis.

It's all swings and roundabouts and being wise enough to know where to invest.

colsten

KGriff wrote: »

Colsten,

The key words I used were/are 'in the long term'.

I know, and I have read what you said. But I don't think you have read what I said.

So I'll try again: somebody who has some money but less than £15,240 to put away is really badly advised to put that money into a cash ISA as long as current and regular savings account interest rates beat ISA interest rates heads down. Simple maths. No contest.

All available statistics show that the vast majority of UK adults has less than £15,240 in savings (search the forum for links to the reports, or use Google to find the publically available information).

For people who have more than £15,240, and after they have catered for their emergency cash fund, ISAs can still be very valuable. May be alongside their pension contributions, may be instead of pension contributions, may be alongside and/or instead of other investments such as BTL, or even just their own four walls.

Where a long-term ISA is relevant, I refer to the explanations jimjames has provided why cash ISAs are most likely not the best choice.

The main bottom line is, however, that it is very wrong to tell people they should have a cash ISA come what may. Which is, unfortunately, what too many people are still doing these days, here and on other internet sites, in the papers and in the various ads by ISA providers.

KGriff

Colsten,

I'm not disagreeing with your viewpoint and for those people that do not save above and beyond the annual ISA limit (currently £15,240) in their working lifetime, then I agree be aggressive and chase the higher rates, providing they understand that there investment in a stocks and shares ISA may go down as well as up, or I agree chase the higher rates in both 'current' and 'savings' accounts, but there are are also people who can save money in their lifetime, that exceeds the annual ISA allowance and my point is that I personally do not think the cash ISA is dead for those people and they should think twice before removing their money out of its tax sheltered status.

Obviously we are all different and have different needs over our lifetime.

At the point of retirement, most people want a less-risky type of investments that pay the highest rate of interest, completely tax free and I think there is scope that cash ISA's could provide that for some people. Maybe it will not suit everyone and I didn't mean to give anyone that impression, but my view is that cash ISA's are not dead at this moment in time.

I believe people should not look only at what they are getting now, and what's available today, but try to think longer term and seriously consider their lifetime requirements, before removing all their savings out of a tax shelter. Particularly if they think it may become difficult to return it back to its tax-free status at some future time.

jimjames

If you're age 65 wanting best income then again a cash ISA won't give as much as funds in S&S isa where you can get 4%. Yes the value will fluctuate but if primary consideration is income then the value on any particular day is irrelevant in most cases.

With potentially 20+ years of retirement ahead there seems to me to be a case for remaining invested beyond retirement albeit in different funds to earlier in life. So still not really a need for cash ISAs.

KGriff wrote: »

At the point of retirement, most people want a less-risky type of investments that pay the highest rate of interest, completely tax free and I think there is scope that cash ISA's could provide that for some people. Maybe it will not suit everyone and I didn't mean to give anyone that impression, but my view is that cash ISA's are not dead at this moment in time.

I'm not sure if the comment was directed to you, more the mse articles that always say to use a cash ISA regardless, including the article linked at the start of this thread, despite suggesting that they are dead.

But ultimately it's down to each person to choose what they're comfortable with, it's just a shame that some are making that decision based on misleading or limited information.

KGriff

jimjames,

Cash ISA's at the moment are not performing aswell as some stocks and shares ISA's. I have had more than 10 years investing in both types and now do most of my own buying and selling of managed funds via TD Waterhouse.

I have had a degree of success and like most people when funds fall, I invest more in them and wait for them to rise again, but it can be the case you have to wait months or years for some funds to return to their previous levels and yes I appreciate that a good diverse portfolio can balance out the losses etc.

A good recent example of a poorly performing fund is JP Morgan's Emerging European Markets Acc Fund, which has been discussed a lot on these forums. It is 40% down on its 2010 level. Imagine if all your investments went downhill to that degree just after you choose to retire.

When you are retired, not everyone wants that element of uncertainty surrounding their investments. I personally want less risk with guaranteed income and then anything 'surplus to requirements' can go towards the stock market in managed funds, equities etc. or other types of investments, peer to peer lending etc.

So in my case I would still prefer to see both types of ISA available to allow each of us to choose.

If I were younger then yes, a lot of my cash would be in Stocks and Shares too, but my wife and I have trodden that road and nearing the more cautious 'retirements end'.

Just as an aside, there is a 'retired' bank manager who lives near me who retired from The Royal Bank of Scotland in 2004/5 he took a small cash pension and a share option in the bank. He thought he was sorted for the rest of his life.

His shares were what I term 'rather vast' and his retirement income was very substantial ... until the financial crash.

He and his wife were sadly forced to return to work, as their retirement planning went straight out the window. Now I know that's not entirely relevant to stocks and shares ISA's, but people do have to realise that some things carry risks and people should carefully choose their own risk levels, particularly at the end of their working careers. The retired bank manager of course knows his mistake of not having a diverse portfolio, but he simply did not think deeply enough about the future.

Putting all your eggs in one basket can never be the right answer, when saving or investing, so I believe there has to be room for both the stocks and shares ISA and the cash ISA, or at least something which provides risk, and risk adverse options in the future.

bowlhead99

colsten wrote: »

The main bottom line is, however, that it is very wrong to tell people they should have a cash ISA come what may. Which is, unfortunately, what too many people are still doing these days, here and on other internet sites, in the papers,

jimjames wrote: »

I'm not sure if the comment was directed to you, more the mse articles that always say to use a cash ISA regardless, including the article linked at the start of this thread,

I actually hear a lot more from people on this forum saying how it is outrageous that MSE and 'all media' say that "you should have a cash ISA come what may" and "always saying to use a cash ISA regardless"... than I actually hear MSE and all media say those things at all.

When was the last time you saw a new MSE article that said you should use a cash ISA regardless of circumstances? Even the ones that are articles dedicated to giving news about new ISA products and features usually throw in some comments about how at present, other savings products can deliver a higher net rate in the short term.

I certainly see see you guys taking any excuse to have a moan and bash the media because they dare to talk about things which might be of interest to those who would benefit from tax shelters instead of focussing all their attention on those people with smaller amounts of income or savings who have less of a need for tax shelters. However, most articles are not too bad really.

For example:

mse articles that always say to use a cash ISA regardless, including the article linked at the start of this thread

I read the article. Halfway down the page in eighteen point font a massive headline leapt out at me and said

Bank account rates can smash cash ISA rates out the water

There were then several bullet points about how you could get 3%+ 3% cashback, how you could get 4% or 5% on smaller amounts, how you could use regular savers etc.

The article is clearly not saying you should use cash isas regardless. In the context of asking whether the cash ISA is dead it asks the rhetorical question in another massive headline font "if bank accounts pay so much higher than ISAs are they not better?" and then immediately answers it FOR MANY PEOPLE YES THEY ARE.

There is a simple caveat following that sentence, to the effect that current accounts are not always better, because it depends on your circumstances, tax rates, continuing availability of loss-leading products etc. But this is clearly not a 'ramming ISAs down our throats' article that is pumping ISAs at all costs.

In response to the subject question of the article 'are cash ISAs dead' to which many people on this thread are nodding along saying yes yes they are dead in the water, it provides six reasons why someone might want to open an ISA after all. This article is not blindly saying use ISAs regardless of circumstances. It is shouting in quite large letters that ISAs are not paying the best rates, and for many people current accounts and regular savers are better, BUT there are some reasons why you might like to use an ISA, and that you are not dumb as a box of rocks for daring to consider it, because there are several valid reasons and one of them might fit your circumstances.

Sure, some people only have £2000 savings. The article says quite plainly and clearly that those people can get 5% pretax at the moment - and they can get some accounts that pay 3% all the way up to £20k etc. The article does not say anywhere that they should dump those accounts.

The article acknowledges however that in the frenzy for everyone going out and opening umpteen current accounts, and the dismissal of ISAs as something that has no value whatsoever and will never have any value as long as we all shall live because it is a dead product, people might be missing a trick because ISAs still have the good features that they had when introduced over 15 years ago.

With larger annual allowances, two-way transferability with S&S wrappers and inheritability, they are better than ever, even if the unwrapped savings accounts also got relatively better with the present promotional rates plus the new wider starting band for some people plus a tax waiver on the first £200 of tax you would have otherwise paid.

The article pointing out that for various reasons, a product class should not be roundly disregarded without thought, is not an unreasonable stance IMHO. They are providing information about a product class. What financial website do you want: - one that does that, or one that is censored for mentioning them because "well, most people have less than £15k savings and do not currently need a tax shelter, what with a new allowance being brought in and interest rates temporarily being lower than in the last hundred years"?

I would prefer to be educated thanks, and then I can come to my own conclusions.

bowlhead99

colsten wrote: »

it is very wrong to tell people they should have a cash ISA come what may. Which is, unfortunately, what too many people are still doing these days, here and on other internet sites, in the papers and in the various ads by ISA providers.

Shock horror, the various ads by ISA providers suggest you might like to consider getting an ISA??? Do the various ads by current account providers not suggest you should get one of those? And are those providers not in fact the same people anyway? They are not going to tell you that you should make a choice either /or, they will happily make a case that each have USPs. You can decide for yourself it you like them. Being able to benefit from an ISA is quite aspirational as it implies you have moved up in the world, got a larger pot size etc for its unique selling points to become relatively more useful than at lower incomes and levels of assets. It is not right for everyone but to simply be allowed to hear about it, is fine.

Do the various ads by washing detergent manufacturers not suggest you might like to use their product too, even if you are already using their product because you buy Daz or Bold or Fairy and in this particular ad break they happen to be pimping Ariel - even though the revenue for all of them goes to Procter & Gamble? They can dispense the information but it is up to you if you think its worth actioning or ignoring.

jimjames

Bowlhead, just before that section you quoted, Martin says:

Even if we ignore the fact there's a year until we get there, I've still six reasons why I'd open a cash ISA before that, rather than just relying on your personal savings allowance.

KGriff

bowlhead99 wrote: »

In response to the subject question of the article 'are cash ISAs dead' to which many people on this thread are nodding along saying yes yes they are dead in the water, it provides six reasons why someone might want to open an ISA after all. This article is not blindly saying use ISAs regardless of circumstances. It is shouting in quite large letters that ISAs are not paying the best rates, and for many people current accounts and regular savers are better, BUT there are some reasons why you might like to use an ISA, and that you are not dumb as a box of rocks for daring to consider it, because there are several valid reasons and one of them might fit your circumstances.

The article acknowledges however that in the frenzy for everyone going out and opening umpteen current accounts, and the dismissal of ISAs as something that has no value whatsoever and will never have any value as long as we all shall live because it is a dead product, people might be missing a trick because ISAs still have the good features that they had when introduced over 15 years ago.

With larger annual allowances, two-way transferability with S&S wrappers and inheritability, they are better than ever, even if the unwrapped savings accounts also got relatively better with the present promotional rates plus the new wider starting band for some people plus a tax waiver on the first £200 of tax you would have otherwise paid.

The article pointing out that for various reasons, a product class should not be roundly disregarded without thought, is not an unreasonable stance IMHO. They are providing information about a product class. What financial website do you want: - one that does that, or one that is censored for mentioning them because "well, most people have less than £15k savings and do not currently need a tax shelter, what with a new allowance being brought in and interest rates temporarily being lower than in the last hundred years"?

I would prefer to be educated thanks, and then I can come to my own conclusions.

Bowlhead99,
I completely agree with you and in my own circumstances, I am glad to still have the cash ISA available. I think some believe I was trying to announce that everyone should have them, that's really not the case and if anyone thought that from my post, then I am truly sorry.

What I was trying to do at the start of my first post in this thread, was to explain my own circumstances, ranging over a long period from my mid-thirties to the present day (mid 50’s) and state why I thought cash ISA's are not dead and why I believe they remain useful for the future.

You are absolutely correct, people should read all the information available to them and then have the right to choose what's right for their circumstances.

bowlhead99

jimjames wrote: »

Bowlhead, just before that section you quoted, Martin says:

Even if we ignore the fact there's a year until we get there, I've still six reasons why I'd open a cash ISA before that, rather than just relying on your personal savings allowance.

The article offers a counterpoint to the notion that a tax wrapper that sits around cash (as distinct from one which sits around investments) has no place whatsoever in the suite of financial products available in the UK and is forever dead in the water.

Actually Martin, as a savvy financial journalist, has been able to identify some reasons why ISAs could be valid choices for some people and do not need to stay "out of sight, out of mind" in the public consciousness. So, he poses an "are they really dead" question, suggests they may not necessarily be, makes sure he lays out a number of products that offer higher rates than ISAs in the interests of balance - and explicitly says that most people would find those better as "money saving experts" - and invites debate.

I don't have a problem with that. The fact that most people don't have a lot of cash and don't need tax planning should not prohibit him from writing an article which ensures people are aware of the reasons that ISAs may be used. As rates change, the reasons may be more relevant to more people or they may not.

You can't hand on heart say that MSE always says that *you* should have an ISA regardless: it is factually incorrect, even though lots of people bang on about it in an unthinking parrot like fashion without actually reading the articles...