Is it time to ditch cash ISAs – now that all savings will be tax-free?

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  • jamesdjamesd Forumite
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    You're right provided that the amount of earned income is no higher than the personal allowance. There are three different pieces that get you there:

    1. The personal allowance.
    2. The starting 0% rate for savings interest. Each Pound of earned income over the personal allowance reduces the amount which qualifies for this by a Pound.
    3. The Personal Savings Allowance.

    There's an MSE article about this which also explains what happens to those who earn between the personal allowance and the top of the 0% starter savings interest rate. The article has some examples and more details.
  • PlusPlus Forumite
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    Another reason in favour of cash ISAs is they're a 'gateway drug' to stocks and shares ISAs.

    The 'savings journey' of many people is that they sort out their debts, then accumulate some savings, and then learn about investment for their retirement.

    A pension is the obvious vehicle for retirement planning, but using a S&S ISA can provide much more flexibility. S&S ISAs are useful because they're free of capital gains tax, some tax on dividends, and much easier to administer (no tax record keeping required). They don't have a tax contribution from the Chancellor but they aren't taxed when they pay out, unlike pensions. (Tax treatment of pensions may change, of course)

    If the savings step on their journey is into cash ISAs, it's very easy to transfer them into S&S ISAs when you want to invest for the longer term (5/10 years or more). If you saved outside the tax wrapper, you can then only feed in £15Kpa into a S&S ISA and beyond that are forced to have unwrapped investments subject to tax (and the tedious record keeping that implies).

    If the annual 'withdrawal shuffle' as suggested by jamesd works out, it's still worthwhile filling your cash ISA allowance even if the money is only there over the end of the tax year. That way you retain the right to transfer your cash into a S&S ISA at a later date, while getting the best rates the rest of the year.
  • reduxredux Forumite
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    I'm a bit uneasy about the wording of the title, and one or two assumptions included or implied.

    It's simplifying things and not quite accurate and to say all savings will be tax free. It might be better though more pedantic and boring to say most savings will be tax free, or better still most people will have all their savings tax free.

    Yes, Martin goes on to discuss this, e.g. for 95% etc, and the title was rhetorically like a sample question asked by someone else, but I wonder if changing the word to most rather than all would be an improvement, if we consider that some people may read it as much as a statement as a question, and the title can be more powerful than the qualifying nuances later.

    Maybe I'm just being too pedantic though.
  • jamesdjamesd Forumite
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    Plus, my guess is that it'll mainly be offered for low interest rate accounts, not leading interest rate payers. Also seems unlikely to be competitive with the best term deposit deals but anyone doing that could usefully consider the far higher paying P2P, though with some investment risk on the P2P side, and clear indications now that at least some of the bigger P2P players will be able to accept Innovative Finance ISA money to pay out tax free.

    Reduc, you're right but it's worth considering Martin's audience profile and that it is likely to be very heavily dominated by people for whom the current headline is true. I expect that past surveys have shown the sort of level of savings that the audience has so he and the team will have a really good idea about targeting. Most won't even have enough to fully use one year's ISA allowance.

    Not remotely true for me with circa £10k of interest income mostly from P2P but I'm definitely an outlier.
  • Is there any new ISA that has a decent interest rate on the market now?
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