Help to buy ISA confusion

Simonm

I'm a bit confused too about the whole Help to Buy ISA rules.

I've £20K saved in a First Direct ISA which I opened in April 2014. I haven't put any money into the account since April 2015. With the recent rate reduction on this account am I right in thinking I can do the following?

1. Open a new cash ISA today with say Virgin Money - currently offering the best rate, transfer in £18,800 from my old ISA but not add any new money in, then just leave it...

2. Open a Help To Buy ISA when they launch, transferring in £1200 from my First Direct ISA and then pay in £200 a month to that account.

I'd then close my First Direct ISA....

Rich2808

Simonm wrote: »

I'm a bit confused too about the whole Help to Buy ISA rules.

I've £20K saved in a First Direct ISA which I opened in April 2014. I haven't put any money into the account since April 2015. With the recent rate reduction on this account am I right in thinking I can do the following?

1. Open a new cash ISA today with say Virgin Money - currently offering the best rate, transfer in £18,800 from my old ISA but not add any new money in, then just leave it...

2. Open a Help To Buy ISA when they launch, transferring in £1200 from my First Direct ISA and then pay in £200 a month to that account.

I'd then close my First Direct ISA....

No need to close your first direct isa - just move it!

Why not open a help to buy ISA with Nationwide who unlike Virgin or FD allow you to invest in other cash ISA products in year as well as the help to buy ISA.

They have a save to buy isa which pays 2% on up to £20k - you need to pay in £50 at least a month though and it offers good incentives if you evenutally take out a mortgage with them. And if you open a current account with them (the flexplus is a great packaged account which offers 3% interest on £3k and a wide array of insurance/breakdown cover for £10 a month) or the flexdirect which pays 5% interest you can get 1.6% on their flexclusive ISA. They also have a 2% regular saver ISA.

I would not normally promote anyone but for me - unless you can only afford to invest £2.4k a year in an ISA - using Nationwide or Aldermonre for your HTB Isa is a no brainer as they offer you more flexibility.

colsten

Simonm, sounds you will be eligible for the HTB ISA, and you can ask your HTB ISA provider to transfer £1,200 from your FD ISA into the HTB ISA.

You can do as Rich2808 suggests and ask Nationwide (or Natwest) to transfer your entire FD ISA to them, and then split our £1,200 to go into the HTB ISA. That way, the best interest you can get on your money will be a net 2% variable.

I personally would never use a cash ISA if I had £20K (or even £50K) that I want to keep in cash. I would put the lot into the best interest paying current accounts (TSB, Nationwide, Lloyds, Tesco, BOS), and then drip-feed 5% and 6% Regular Saver accounts from them. This will yield over 4% gross (variable), and from next April, you can probably get all that interest free of tax. Between now and then, even after tax you can easily beat a 2% ISA rate.

As an FTB, I would of course try to get the HTB ISA bonus, and I would opt for the HTB ISA that pays best interest - currently 4% at Halifax.

colsten

Rich2808 wrote: »

I would not normally promote anyone but for me - unless you can only afford to invest £2.4k a year in an ISA - using Nationwide or Aldermonre for your HTB Isa is a no brainer as they offer you more flexibility.

Flexibility doesn't pay bills or add money to your home deposit. I disagree that going for mediocre ISA rates is a no-brainer when there are so many great alternatives that pay 2 or 3 times as much interest at an ISA does.

Rich2808

colsten wrote: »

Flexibility doesn't pay bills or add money to your home deposit. I disagree that going for mediocre ISA rates is a no-brainer when there are so many great alternatives that pay 2 or 3 times as much interest at an ISA does.

Yes - but there are other factors.

Most people considering buying in London and the south east will be higher rate taxpayers - few people on a basic rate salary would be able to afford to buy anything worth buying in large parts of the country especially on their own.

2% tax free is better than 3% with 40% tax - and no tax return either. So it depends.

And Nationwide also offer low mortgage rates and good first time buyer incentives - if you go via their save to buy isa route.

We are talking about first time buyers here - not pensioners. Getting £9 a month interest on a 5% current account aint going to buy you a £350k flat in London. But £1.750 of incentives on a mortgage product might help plus your £3k from Osborne.

Simonm

colsten wrote: »

Simonm, sounds you will be eligible for the HTB ISA, and you can ask your HTB ISA provider to transfer £1,200 from your FD ISA into the HTB ISA.

You can do as Rich2808 suggests and ask Nationwide (or Natwest) to transfer your entire FD ISA to them, and then split our £1,200 to go into the HTB ISA. That way, the best interest you can get on your money will be a net 2% variable.

I personally would never use a cash ISA if I had £20K (or even £50K) that I want to keep in cash. I would put the lot into the best interest paying current accounts (TSB, Nationwide, Lloyds, Tesco, BOS), and then drip-feed 5% and 6% Regular Saver accounts from them. This will yield over 4% gross (variable), and from next April, you can probably get all that interest free of tax. Between now and then, even after tax you can easily beat a 2% ISA rate.

As an FTB, I would of course try to get the HTB ISA bonus, and I would opt for the HTB ISA that pays best interest - currently 4% at Halifax.

Thanks so much for the advice! It's much appreciated. I want to avoid the whole minimum direct debit rule on having different current accounts (and try and keep my life a bit sane and uncomplicated) so I think I'm going to do the following...

1. Withdraw £18,800 from my First Direct ISA into my current First Direct current account.
2. Open a Santander 1-2-3 account, and dump the £18,800 in there so I'll earn 3% interest on that (tax free once the new rules come in in April). I'll use that as my main account.
3. Transfer £2,000 straight away into a TSB Current Account so I earn 5% on that
4. Each month transfer £500 into the TSB current account to meet minimum deposit rule and divert £250 to its Regular Saver
5. Send the other £250 back to my Santander account
6. In the meantime open a Halifax Help to Buy account, transfer the remaining £1200 in from my First Direct ISA
7. Setup a transfer each month from the Santander account into the Halifax HTB ISA.

Do you have any thoughts on that Colsten? I think it seems to be maximising interest and keeping things relatively simple while also taking account of the HTB ISA? Any thoughts really appreciated, thanks for the help!

masonic

Rich2808 wrote: »

Most people considering buying in London and the south east will be higher rate taxpayers - few people on a basic rate salary would be able to afford to buy anything worth buying in large parts of the country especially on their own.

I find it hard to believe most people considering buying in London/SE will be higher rate taxpayers when the median London salary for working people is £34k and many of those looking to buy will be at an early stage in their career and therefore earning even less than that on average.

colsten

Simonm, your plan would work and would pay you more interest than a normal ISA, but it isn't the one that pays you best interest. I appreciate you want to keep things relatively simple, however, so if you can make £5 a month from DD cashback in the 123 a month, it might be the best compromise.

There are one or two additional ideas you might want to pursue:

• you say you have a First Direct current account - - so you could make max use of their 6% Regular Saver. I.e. drip-feed £300 a month
• as you are probably going for the Halifax HTB ISA: also open a Halifax Reward current account. Put two "special" DDs on it, cycle £750 a month through it, collect £5 a month (£60 a year)
• I'd exploit all the switching offers, even if I had to open some donor accounts specifically for that purpose. Nationwide and Halifax currently have switching offers, and it's worth keeping a watch for other offers.

"Special" DDs are easy to get. You just need a couple of Tesco savings accounts and then you can set up as many DDs as you need.

Simonm

colsten wrote: »

Simonm, your plan would work and would pay you more interest than a normal ISA, but it isn't the one that pays you best interest. I appreciate you want to keep things relatively simple, however, so if you can make £5 a month from DD cashback in the 123 a month, it might be the best compromise.

There are one or two additional ideas you might want to pursue:

• you say you have a First Direct current account - - so you could make max use of their 6% Regular Saver. I.e. drip-feed £300 a month
• as you are probably going for the Halifax HTB ISA: also open a Halifax Reward current account. Put two "special" DDs on it, cycle £750 a month through it, collect £5 a month (£60 a year)
• I'd exploit all the switching offers, even if I had to open some donor accounts specifically for that purpose. Nationwide and Halifax currently have switching offers, and it's worth keeping a watch for other offers.

"Special" DDs are easy to get. You just need a couple of Tesco savings accounts and then you can set up as many DDs as you need.

Thanks again! I think having more than two current accounts and cycling money through them would perhaps be a step too complex for me to keep on top of I'll probably go with my original plan and if I find it's going ok look at maybe taking it up a gear. Thanks so much for getting back to me.

c0nfused_2

c0nfused wrote: »

Thank you so much, that is very helpful! I didn't know transferring to another Nationwise ISA then into the STB would be an option.

I had thought the entire interest rate drops to 0.25% if you go over 20k (the site says "* On balances over £20,000 0.25% AER tax-free variable will be paid on the whole balance"), but either way I can make sure this doesn't happen.

Sounds like I need to get myself an appointment at Nationwide.

@eskbanker I appreciate that, as you say it's not a lottery win but I'd be very glad of it, and if things end up taking a year rather than 6 months I don't want to be regretting not doing it

Waited for December then called to make an appointment at Nationwide - turns out they have stopped the Save to Buy now the Help to Buy has started. So have missed my chance at benefiting from both. So annoyed, didn't think that they might end the other with no warning