ISA and current account with same bank?

MoonJelly

Hello All,
I would like some advice. We are currently paying a loan and credit cards. However, as OH is self-employed we are thinking of opening a cash ISA account as an emergency fund with about £1,500.

Our present current account is with Nationwide. We hope to pay all debts within 2.5 years and save to buy a house right after and we understand Nationwide offers good deals to its customers. I wonder if there is an advantage to having an ISA at the same bank you have other accounts with and if having an ISA would help us when the time comes to apply for a mortgage.

Also my posts always end with a random number I didn't put there
300

AndyT678

1. I don't think having £1,500 in an ISA would make much difference to a mortgage application.
2. Why would you restrict yourself to whatever mortgages Nationwide might be offering in 3, 4, 5 years time anyway.
3. There are much better places for £1,500 than a Nationwide ISA. TSB current a/c @ 5% leaps to mind.

molerat

No advantage in keeping it all with one bank, in fact it can be a disadvantage - they can use set off if you owe them money. Why an ISA, there are many current accounts paying well over ISA rates even after 40% tax is taken.

cakeforbrains

It's not a good idea to have savings and unsecure debts unless those debts at at 0% apr. http://www.moneysavingexpert.com/savings/pay-off-debts

ViolaLass

Since you have debts, keep a credit card for emergencies, rather than having savings and debt.

MoonJelly

AndyT678 wrote: »

1. I don't think having £1,500 in an ISA would make much difference to a mortgage application.
2. Why would you restrict yourself to whatever mortgages Nationwide might be offering in 3, 4, 5 years time anyway.
3. There are much better places for £1,500 than a Nationwide ISA. TSB current a/c @ 5% leaps to mind.

Good common sense. Thanks for the heads up -I will check out TSB rates.

molerat wrote: »

No advantage in keeping it all with one bank, in fact it can be a disadvantage - they can use set off if you owe them money. Why an ISA, there are many current accounts paying well over ISA rates even after 40% tax is taken.

Huh, I didn't realise they could take the money. I thought an ISA was better than a savings/current account because and ISA is tax free?

cakeforbrains wrote: »

It's not a good idea to have savings and unsecure debts unless those debts at at 0% apr. http://www.moneysavingexpert.com/savings/pay-off-debts

We have applied to a Barclays card and if approved we can move most of the debt to a 0% apr. However we still need an emergency fund because as I said OH is self-employed and it has been our experience that living "paycheck" to mouth is very dangerous -that is how we got the CC debt in the first place. Sometimes clients take ages to pay up.


Thank you all for the replies. I will definitely check TSB and give matter a bit more thought.
673

colsten

MoonJelly wrote: »

I thought an ISA was better than a savings/current account because and ISA is tax free?

Sometimes paying tax can be goodness all round, as

1. you can be left with more money than in a tax-free account
2. you have made a positive contribution to the nation's coffers at the same time

What you should compare is the AER after tax. Your best instant access cash ISA currently pays 1.6% AER, with no further deductions. A TSB Plus current account pays 5% AER, which will be 4% AER after basic rate tax. In other words, ISA interest from £1,500 will be £24 after a year. The interest after BR tax from a TSB Plus on £1,500 will be £60 - - - a full 2.5 times more than the ISA pays. In addition, the tax man earns £15 from you keeping your money in a TSB Plus, and it hasn't hurt you one bit to pay that tax.

Caladan

ViolaLass wrote: »

Since you have debts, keep a credit card for emergencies, rather than having savings and debt.

I know that from a strictly financial viewpoint, this is the right move.

Personally however, I am not a fan (I have both debt and savings) for the following reasons:

1) Credit cards can be closed by the provider whenever they like, so if you rely on it to fall back on and it's suddenly removed/limit reduced and you also have no savings - you're screwed.

2) Credit cards charge for cash withdrawals and calculate interest daily on cash, you may need physical cash in an emergency and by taking it on the card you've just undone all the good you did by paying debt down.

3) In my experience, banks look more favourably on people with a history of saving, even if they also hold unsecured lending.

4) I like to pretend I'm not flat out broke

Ultimately - By relying on cards/overdraft as a fall-back instead of savings, the bank is in control of whether or not you can pay your bills. I am not comfortable with that.

MoonJelly

colsten wrote: »

Sometimes paying tax can be goodness all round, as

1. you can be left with more money than in a tax-free account
2. you have made a positive contribution to the nation's coffers at the same time

What you should compare is the AER after tax. Your best instant access cash ISA currently pays 1.6% AER, with no further deductions. A TSB Plus current account pays 5% AER, which will be 4% AER after basic rate tax. In other words, ISA interest from £1,500 will be £24 after a year. The interest after BR tax from a TSB Plus on £1,500 will be £60 - - - a full 2.5 times more than the ISA pays. In addition, the tax man earns £15 from you keeping your money in a TSB Plus, and it hasn't hurt you one bit to pay that tax.

I can assure you that as sole trader OH pays more taxes than big companies (i.e. Amazon) wth far fewer perks. We are trying to follow the advice of Martin as part of our debt from an unsecured personal loan:

So overall, whether an emergency happens or not, the best result is to pay off your debts with your savings. The only time to beware of this is if you're not assured of being able to reborrow the cash.
Usually with credit cards it's fine, as they're a readily available source of credit, but if your debt is a personal loan, there's no guarantee you will be able to get another – in which case an emergency fund is sensible.

I will have to think about opening another current account. We are quite happy with Nationwide and don't want to mess up our credit rating.

103119134

MoonJelly

Caladan wrote: »

I know that from a strictly financial viewpoint, this is the right move.

Personally however, I am not a fan (I have both debt and savings) for the following reasons:

1) Credit cards can be closed by the provider whenever they like, so if you rely on it to fall back on and it's suddenly removed/limit reduced and you also have no savings - you're screwed.

2) Credit cards charge for cash withdrawals and calculate interest daily on cash, you may need physical cash in an emergency and by taking it on the card you've just undone all the good you did by paying debt down.

3) In my experience, banks look more favourably on people with a history of saving, even if they also hold unsecured lending.

4) I like to pretend I'm not flat out broke

Ultimately - By relying on cards/overdraft as a fall-back instead of savings, the bank is in control of whether or not you can pay your bills. I am not comfortable with that.

I am familiar with this scenario. Some time ago the Co-op bank said it was cancelling our overdraft facility despite the fact we were in the black (we closed our account with them as a result). Also last year there was a medical emergency in the family and we had to borrow money from the credit card. The interest rate was horrendous and when we tried to pay it back the bank informed us that when making payments they allocate said payment to the general debt first and the repayment of the money borrowed would be the last item to be paid off regardless of our wishes. Because the interest rate on money borrowed is so much higher than interest on purchases we found it was a bad deal to borrow money in this way.

138140

ViolaLass

MoonJelly wrote: »

I am familiar with this scenario. Some time ago the Co-op bank said it was cancelling our overdraft facility despite the fact we were in the black (we closed our account with them as a result). Also last year there was a medical emergency in the family and we had to borrow money from the credit card. The interest rate was horrendous and when we tried to pay it back the bank informed us that when making payments they allocate said payment to the general debt first and the repayment of the money borrowed would be the last item to be paid off regardless of our wishes. Because the interest rate on money borrowed is so much higher than interest on purchases we found it was a bad deal to borrow money in this way.

138140

That's changed now.