MSE News: Help to Buy ISA rates begin to be unveiled

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Many major providers have announced how much their Help to Buy ISAs will pay in light of their launch tomorrow...

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Help to Buy ISA rates begin to be unveiled



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physicsgirl

Why haven't they released more details about products launching tomorrow??

Could someone check my logic/maths on this: having a Help to Buy ISA not only limits you opening another ISA this year but also in all subsequent years you hold it. I therefore initially thought the Nationwide account that allows a split between Cash (1.4%) and HtB (2%) ISAs might be better than Halifax HtB (4%) (if they don't offer a split (still not confirmed)). But then I did some sums.

Assuming:
(1) the ISA rates are fixed for 4 years (not guaranteed),
(2) the total ISA allowance is fixed for 4 years (also not guaranteed),
(3) you are a basic rate tax payer,
(4) you can deposit the maximum ISA allowable each year,
(5) interest rates are calculated annually,
(6) you buy a house after 4 years,
(7) after 4 years there are some houses left in the UK that cost less than £250,000 (or £450,000 in London)...
Here's how the sums compare:

Depositing £3400 in the first year and £2400 in subsequent years, and compounding the interest, after 4 years, with the Halifax HtB you'd have £11769.03 compared to £11172.13 with Nationwide (losing not only the difference in interest of £596.90, but also a government bonus of £149.23).

Thus the interest gained on using the rest of your ISA allowance would have to be £746.13 MORE than the interest in a normal savings account. To get this kind of gain from the Nationwide 1.4% cash ISA, the best alternative would have to be a savings account offering 0.81% interest** (1.0125% for the next 4 months, or if you had already used up your £1000 "free" interest from April). Since the best buy easy access savings are currently higher than this (around 1.5%) it would seem that the higher interest HtB account is the way to go.

Obviously there are a lot of assumptions, but I would imagine for most people the Halifax HtB ISA would be the best choice. Of course if interest rates were to rise then that throws things a little, but hopefully the ISA and easy access account would rise at ~the same rate. It's (7) that I'm most worried about...

** Based on saving £11840 in the first year and £12840 in subsequent years, after 4 years you'd have £52126.76 in the Nationwide 1.4% and £51375.70 in the other account at 0.81%, i.e. £750.05 more in the Nationwide.

colsten

physicsgirl wrote: »

Could someone check my logic/maths on this: having a Help to Buy ISA not only limits you opening another ISA this year but also in all subsequent years you hold it.

You can

1. subscribe to an S&S ISA alongside subscribing to an HTB ISA
2. at certain providers (Nationwide, Natwest, may be others), you can also subscribe to a cash ISA alongside an HTB ISA

However, an S&S ISA should be a 7-10 year minimum commitment, and a non-HTB cash ISA is most likely a waste of money as you can get much better interest for up to £50K in other places.

HTB ISA rates are variable, thus not fixed for 4 years.

physicsgirl wrote: »

the best alternative would have to be a savings account offering 0.81% interest** (1.0125% for the next 4 months, or if you had already used up your £1000 "free" interest from April).

the best alternative are accounts that pay between 4% and 6% AER.

masonic

physicsgirl wrote: »

having a Help to Buy ISA not only limits you opening another ISA this year but also in all subsequent years you hold it. I therefore initially thought the Nationwide account that allows a split between Cash (1.4%) and HtB (2%) ISAs might be better than Halifax HtB (4%) (if they don't offer a split (still not confirmed)). But then I did some sums....

It's good that you challenged your own assumption and did the sums. Others have been posting in other threads that the Nationwide account is superior owing to the ability to use the remainder of your ISA allowance for a separate cash ISA. However, your calculated minimum 0.81% net interest on other savings to break even with the Halifax HTB ISA can be beaten by the vast majority of people - even those who can't/won't open a current account.

compbren

Definitly going to open one with Halifax. Got around £25k saved up so will put the £1,200 in month one and just £200 every month until I feel ready to buy. Looking to save at least £40k before I think about buying so should acheive that in around 18 months.

colsten

Newcastle BS 1.51%.
And you can put the rest of your ISA allowance into their 1% or 1.16% ISAs.
That's ISAs incl a 0.65% bonus .......................
You WHAT???

I think we should begin to think about setting up an initiative against the exploitation of First Time Buyer savers.

In the meantime, I hope no FTB falls for the mediocre Newcastle HTB ISA offer. On currently available info, Halifax at 4% sounds the way to go.

AndyTh_2

Could someone check my logic/maths on this: having a Help to Buy ISA not only limits you opening another ISA this year but also in all subsequent years you hold it.

The first tax year you can only put a maximum of around £1800 - £2000 in (£1200 in Dec, and £200 each month after till end of April 5th)

Given you can put money in a Stocks & Shares ISA without actually investing, and since the New ISA rules, I believe you can transfer S&S ISA to Cash ISA, it seems you can get around the "no separate Cash ISA" rule by putting the remainder of your allowance in a S&S ISA in March, and transfer it to a Cash ISA in April.

This should allow you to put the £2000 in H2B ISA and £13,240 in S&S ISA this tax year, transfer the £13,240 to a Cash ISA next tax year, while putting in the £2400 in H2B ISA and £12,850 in S&S ISA again that year.

Of course I expect Halifax's 4% to only last for a period, and to not allow transfers.

I use a S&S ISA anyway for investment, but I'd consider that myself if I feel I put too much in investments, or am able to transfer to an Innovative Finance ISA next April.

jimjames

I'd still question why you'd need to put any money in a cash ISA other than HTB when such better rates are available. If it's for deposit then long term tax status is irrelevant.

AndyTh_2

AndyTh wrote: »

The first tax year you can only put a maximum of around £1800 - £2000 in (£1200 in Dec, and £200 each month after till end of April 5th)

Actually, this is only if you start this year. If starting from next April, then I guess it's £3400, but better to start earlier if you are able to.

colsten

But why would you do this if you can get more interest outside an ISA?

physicsgirl

colsten wrote: »

You can
1. subscribe to an S&S ISA alongside subscribing to an HTB ISA

Yes, this I hadn't included this option, although I believe the majority of first time buyers won't go for it.

colsten wrote: »

2. at certain providers (Nationwide, Natwest, may be others), you can also subscribe to a cash ISA alongside an HTB ISA

This is what my calculations were based on

colsten wrote: »

the best alternative are accounts that pay between 4% and 6% AER.

I was making the point that the best alternative accounts would have to be 0.81% in order for for the Nationwide cash ISA to be a better option than Halifax, but of course there are higher interest rates available (those rates being dependent on how much you can save and the length of time you can lock it away, but the easiest instant access being around 1.5% currently).

colsten wrote: »

HTB ISA rates are variable, thus not fixed for 4 years.

I thought that might be the case, I wonder how long it'll be before Halifax drop theirs in line with everyone else?