To H2B ISA or not?

Eco_Miser

bobobski wrote: »

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.

Nationwide has always offered split cash ISAs (eg both fixed and instant access) so the HTB ISA is no different for them. Few others have ever bothered, so not much change there either.

bobobski wrote: »

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?

Is 4% better than 5%?
Given you can only save £200 a month, at only 4%, I can't see any advantage until you've filled all the 6% and 5% accounts, or exceeded your Personal Savings Allowance (£1000/£500/£0).

colsten

bobobski wrote: »

Also my point was not whether you can transfer the money; it's whether doing so would forfeit the bonus.

there is no question - if you request an ISA transfer, you will not lose the bonus. You could, of course, muck up the transfer by doing it yourself, in which case, you'd have lost everything you accrued before.

http://www.helptobuy.gov.uk/help-to-buy-isa/how-does-it-work

bobobski wrote: »

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.

Split ISAs are nothing new. Nationwide, for example, have been offering them since 1999. They have just never been particularly useful and therefore were little known and discussed.

I am of the opinion that they are still not particularly useful, mainly because regular cash ISAs are so trashy. But there appears to be some sort of wide-spread near religious belief, particularly amongst younger adults, that having a regular cash ISA is really desirable because you don't pay tax on it. So they fall prey to absolutely pathetic split ISA offerings, such as where the HTB ISA pays 2% and the regular ISA only 1.5% max.

It is quite painful to observe how so many people forego higher interest earnings for the mistaken pride of having tax-free savings.

bobobski wrote: »

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?

You know that the answer is incredibly simple: you just compare the AER, net of any tax that might be due. The higher number wins. Or, in other words: No, not at the presently available rates.

Archi_Bald

bobobski wrote: »

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?

Just do your numbers. E.g.
12 x £200 @ 4% = £51.69 interest per year
12 x £200 @ 6% = £77.31 interest per year

Difference approx £26 a year. Ignoring compounding, the £1,000 original lump sum, and the fact that you have to start a new RS at the end of 12 months, over 5 years you probably make around 5 x £26 less in the HTB ISA than you would if you used one or more Regular Savers. So you compare a possible £130ish shortfall in interest with the option of getting a £3,000 bonus at the end of 5 years. Only you can decide whether the potential bonus or the £130ish is more relevant/important to you.

bobobski

This is all very interesting, and I'm quite glad there's not an absolutely clear answer as otherwise I'd be feeling quite stupid right now

I'm currently thinking the right option is to go for the H2B anyway to the max of £1,000 lump sum and £200 p/m, and put the rest of my savings (£400 p/m +) into higher interest regular savers and current accounts. With the upcoming tax changes I'm going to be earning more in the 5%/6%s than in the 4% ISA (as a 40% tax payer) which is another reason not to go for the ISA. But as my online reading suggested, the government is more likely to change the rules on income tax on interest than to abolish the ISA's tax-free status. So I guess it's a safety net for the sake of £26 p/a with a slim chance of a £3,000 bonus at the end.

Thank you all for your help; this was something I was really confused about.

Sam_J12

I know people in Cambridge in a similar situation. They are not fussed about the HTB ISA because currently you can just about get a 1 bed place for 250,000 but in a few years there is very little chance of getting anything for that price. I personally wouldn't bother in your situation, unless the 4% Halifax interest rate is appealing, and you wish to use that as a regular savings account and are not fussed about using your whole cash ISA allowance.

I think Cambridge (and a few other southern cities) should be included in the London band of £450,000 max price for the HTB ISAa.

bobobski

Thank you Sam! I agree, or at least having a mid-level band, say £350,000. If you're looking at central-ish Cambridge as I am (for a rough definition, meaning Cambridge is your local train station and not Shelford, Foxton etc), there really isn't anything for £250,000. Even if there were, demand would be far too great to ever have a chance of getting in there first due to the H2B ISA.

Which is why I hope Mr Osborne reads Archi's post above and considers raising the max price for the purpose of the bonus