To H2B ISA or not?

bobobski

This website calls the H2B ISA a "no brainer" if you're a first time buyer. I'm not sure I agree and I wonder if anyone else has their reservations?

Once I've saved enough I'll be looking to buy in Cambridge, ideally in c. 5 years but probably longer. Cambridge is EXTREMELY expensive. You can't even get a decent 1 bed flat here for that money, and that's in 2015, not 2020 onwards. So is there any point getting the H2B ISA if that's my plan?

My thoughts so far:
- Yes because I might not want to live in Cambridge by then.
- Yes because the best ISA interest rate on the market right now is an H2B ISA from what I can tell (4% compared to the top fixed ISA being 2.55%).
- No because perhaps money should be invested elsewhere for higher return.
- No because it's new and we don't know if you can have one, change your mind later and move the money elsewhere, then re-open the H2B ISA after that and still get the bonus?

Context: I only started saving this year (for various reasons). I currently save £300 pm into FD RS at 6% and currently the remainder of my savings (soon to be approx £300 pm) go into my TSB 5% current account. When my FD RS closes in Feb I will transfer the money to the TSB account (and open a new RS for 2016-2017) but will have £1,200 + interest over the TSB limit, so am looking at where else to put the money. I am also now a 40% tax payer but even if ISA rate beats the effective c. 3% TSB, I'd keep the £2k in there as an emergency fund.

Saving for a house as an individual really is a long, uphill battle

takman

I very much doubt you could get a higher return than the 25% bonus + 4% interest anywhere else!.

If your likely to buy your first house sometime before December 2030 then I would say it's definitely worth it. If for some reason you don't claim the bonus your still getting 4% interest which isn't bad at all for an account with a bank.

Archi_Bald

It really is a no-brainer if you go for the 4% one as you are keeping your options open, i.e. you are accruing rights to the bonus. You never know, may be they will lift the limits, and may be even the bonus, in 2020....it's an election year, remember.

Whilst you are correct that saving £200 a month into a 6% Regular Saver rather than into the Halifax HTB ISA pays you better interest, you'd have to be quite certain that you wouldn't be eligible for the HTB ISA bonus.

bobobski

Interesting points. Archi, I would be doing both, as I'd be putting £300 into regular saver and £200 into ISA.

Next question: where does the rest of my money go? If I'm aiming to save at least £600 per month, with £300 into regular saver, £200 into 4% Halifax H2B ISA, have topped out TSB current account in Feb (also when I'd open the ISA to top that out too), then I have at least £100 extra per month to put away somewhere, plus annual bonuses. So do I go for a split H2B ISA or something else entirely?

Archi_Bald

Lots and lots of options https://forums.moneysavingexpert.com/discussion/5374614

All of them better than any normal cash ISA.

bobobski

Oh brilliant, thank you! Looks like I was 6 days behind the curve.

Now just to speed forward time so this interest is in my account(s)......

grey_gym_sock

bobobski wrote: »

- No because it's new and we don't know if you can have one, change your mind later and move the money elsewhere, then re-open the H2B ISA after that and still get the bonus?

i suspect that, if you close a H2B ISA, you can't open another 1. however, you could work around that by instead reducing the balance to £1. then if you want another H2B ISA again later on, you could transfer it and start contributing again - the only disadvantage being that you couldn't then contribute £1,200 in the first month again, only £200.

bobobski

A good point (and my suspicion is the same) and a good idea. The problem is presumably you'd want to close it so you can open a regular cash ISA. Or can you open a regular ISA during a different tax year and can contribute to both but in different years? I suppose that's another reason I'm a bit put off by them: that we don't know a lot about them yet exactly because they're new.

I'm also wondering whether it's worth having an ISA at all with current interest rates, including the Halifax one. If I can get 5%/6% elsewhere with the upcoming tax changes (given my current projections of around £200-£300 p/a interest), is there any ISA advantage?

Having said that, I think Archi's right for the time being: limits may increase and the current limits are the main thing putting me off.

takman

bobobski wrote: »

A good point (and my suspicion is the same) and a good idea. The problem is presumably you'd want to close it so you can open a regular cash ISA. Or can you open a regular ISA during a different tax year and can contribute to both but in different years? I suppose that's another reason I'm a bit put off by them: that we don't know a lot about them yet exactly because they're new.

I'm also wondering whether it's worth having an ISA at all with current interest rates, including the Halifax one. If I can get 5%/6% elsewhere with the upcoming tax changes (given my current projections of around £200-£300 p/a interest), is there any ISA advantage?

Having said that, I think Archi's right for the time being: limits may increase and the current limits are the main thing putting me off.

All the information about help to buy isas has been released now that they are available. It works like a normal isa so you can open one this year and a new is a every tax year just like any other isa. You can transfer the help to buy isa whenever you want just like a normal isa. You can even open a help to buy isa and a normal isa in the same tax year with some providers (but they have the usual low interest rates).

colsten

bobobski wrote: »

The problem is presumably you'd want to close it so you can open a regular cash ISA. Or can you open a regular ISA during a different tax year and can contribute to both but in different years?

Yes you can, at a handful of providers. Nationwide, Natwest, Aldermore all offer what is know as 'split ISAs'.

Although I would not know why anyone saving for a first deposit would want to use a regular cash ISA when there are about a dozen non-ISA accounts that pay better interest.

HTB ISas should be worth your while because of the bonus.

bobobski

Thanks all, although to go back to the original point, there's very little chance I'd get the bonus due to house prices in the area in which I want to buy. That's why I'm not sure if there's any point. From the above, the only point really is to treat it as a slightly lower rate regular saver just in case house prices in Cambridge plummet and the bonus becomes within my reach. That's why I'm not considering split ISAs - the interest is far too low compared to any other savings (or even current) account.

Also my point was not whether you can transfer the money; it's whether doing so would forfeit the bonus. It hasn't been tried yet. Rules usually make perfect sense in writing but it's only when they're tried out that you find the grey areas.

From what I understand they are not just like any other ISA, otherwise there wouldn't only be a handful of lenders who have gone to the trouble of going through the rules with a fine tooth comb to find a way to offer splits. That's what makes me uneasy about them.

I guess the better question would be: if there were no bonus, is a H2B ISA still a better account than a higher paying regular saver/current account?