2016 Budget - ISA changes

andyca

DragonQ wrote: »

That's basically what I plan to do. I already contribute a lot to a private pension and obviously want money in the short and medium term too. If the interest rate of lifetime ISAs is crap then I won't put that much into it, but at least if it's open I can transfer in more later.

We really need some government legislation to ensure interest rates for LISAs and regular ISAs are in line with other products offered by the same bank.

Having a 3% current account and a 1% savings account is not great for the consumer, especially when you are locked in to that savings account with major penalties for withdrawals.

When the Santander and Halifax 4% HTB ISAs came out I wondered what the interest rate would drop to after a few years once people were locked in.

masonic

andyca wrote: »

We really need some government legislation to ensure interest rates for LISAs and regular ISAs are in line with other products offered by the same bank.

Having a 3% current account and a 1% savings account is not great for the consumer, especially when you are locked in to that savings account with major penalties for withdrawals.

No doubt you wouldn't want your LISA to pay the same interest as your 3% current account (i.e. 3% on the first £20k, then 0% on anything above - assuming it's the Santander 123 account, otherwise even less). High interest current accounts are a fixed cost per customer, paid out in the hope you will consume other products that make you profitable as a customer overall. There is normally a cost to the cash ISA wrapper in terms of reduced interest, but the banks would be quick to point out ISAs take more effort to run than a simple savings account.

When the Santander and Halifax 4% HTB ISAs came out I wondered what the interest rate would drop to after a few years once people were locked in.

It's going to depend on the average balance of those accounts, and what happens to the base rate. I guess there is some hope they will sell you a mortgage at the end of it, which might keep rates high.

andyca

masonic wrote: »

No doubt you wouldn't want your LISA to pay the same interest as your 3% current account (i.e. 3% on the first £20k, then 0% on anything above - assuming it's the Santander 123 account, otherwise even less). High interest current accounts are a fixed cost per customer, paid out in the hope you will consume other products that make you profitable as a customer overall. There is normally a cost to the cash ISA wrapper in terms of reduced interest, but the banks would be quick to point out ISAs take more effort to run than a simple savings account.

I'd be fine with that deal for the first 4 years!
But hopefully it will be the even better 4% as offered on the HTBs

masonic wrote: »

It's going to depend on the average balance of those accounts, and what happens to the base rate. I guess there is some hope they will sell you a mortgage at the end of it, which might keep rates high.

That would be nice... The return on investment to sell retirement products 20 years later might lower it a bit though.

masonic

andyca wrote: »

That would be nice... The return on investment to sell retirement products 20 years later might lower it a bit though.

Anyone not using the money to buy a first property in the short term and instead investing for retirement should be looking beyond cash. Cash rates barely keep up with inflation over the long term.

jimjames

masonic wrote: »

Anyone not using the money to buy a first property in the short term and instead investing for retirement should be looking beyond cash. Cash rates barely keep up with inflation over the long term.

My concern would be that most of those using them will stick to cash because that's all they know. Could end up with a generation with very poor retirement savings because they stayed in cash for 50 years

masonic

jimjames wrote: »

My concern would be that most of those using them will stick to cash because that's all they know. Could end up with a generation with very poor retirement savings because they stayed in cash for 50 years

Yes, it is definitely going to be a problem. At least with a pension the default option is something investment-based and vaguely sensible. Hopefully this unmet need will not go unnoticed and something will come along that helps guide LISA users into appropriate investments, whether it is robo-advice or just that nice Mr Dampier with some 'helpful suggestions' to draw customers in.

kidmugsy

andyca wrote: »

We really need some government legislation ...

We already suffer from far too much legislation. Legislating to fix prices would be a particularly gormless way to use political power.

Madglover

My situation is simple

Both me and gf are owners of Help to Buy ISA's (H2BISA)
(all numbers ignore interest)
At the end of this month we will both have £1,800 in our accounts, december £1000 and then 4 months Dec-Mar of contributions

Thus ignoring interest at the start of next april at £200 each a month we will have £4,200 each in our accounts. Whoopee....

The information on this website reads we can then turn our accounts into Lifetime Isa's (L-ISA) and this will not count towards that years ISA allowance so in the tax year 2017-18 we are going to be able to save £4000 each more I believe

Leaving us say on £8,200 around the first week of April in 2018 (and we would have to wait until then to buy a house as LISA traps you for 12 months)
Now the suggestion is that we will get the bonus contribution on the £4,200 still (i'd hope so as that is £1050) now is this to be paid at the end of the year now or will it work in the way H2BISA suggests it would in that you get the bonus when you purchase your house.

I can't find any information on what happens to the H2BISA government bonus contributions if you merge the H2BISA into a LISA. Has anybody seen anything?

Ed-1

Madglover wrote: »

My situation is simple

Both me and gf are owners of Help to Buy ISA's (H2BISA)
(all numbers ignore interest)
At the end of this month we will both have £1,800 in our accounts, december £1000 and then 4 months Dec-Mar of contributions

Thus ignoring interest at the start of next april at £200 each a month we will have £4,200 each in our accounts. Whoopee....

The information on this website reads we can then turn our accounts into Lifetime Isa's (L-ISA) and this will not count towards that years ISA allowance so in the tax year 2017-18 we are going to be able to save £4000 each more I believe

Leaving us say on £8,200 around the first week of April in 2018 (and we would have to wait until then to buy a house as LISA traps you for 12 months)
Now the suggestion is that we will get the bonus contribution on the £4,200 still (i'd hope so as that is £1050) now is this to be paid at the end of the year now or will it work in the way H2BISA suggests it would in that you get the bonus when you purchase your house.

I can't find any information on what happens to the H2BISA government bonus contributions if you merge the H2BISA into a LISA. Has anybody seen anything?

See 1.16: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508176/Lifetime_ISA_final.pdf

"At the end of the tax year (2017/18) they will receive a bonus on the full amount of the transferred Help to Buy: ISA and their Lifetime ISA contributions."

Madglover

Not sure how I missed that. Thanks

That's good news.