Is ISA status really worth protecting?

MONEYTREE_2

Me again. I am a financial newbie so apologise AGAIN for my ignorance.
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I have £50k currently held as cash under the "ISA wrapper".

Seems I cannot get more than 1% in an ISA savings account but I see I can get 1.31% with Charter. That's £680 a year compared with £500 so worth doing. (Yes I can cope with 90-day notice).

So my question is, as the govt is now allowing us to earn £1,000 taxi-free in interest anyway, does it really matter if I lose the ISA status of this money in order to get that 1.31%.

(I've searched all over MSE to find a better rate for the 50k but I cannot find better than that 1.31% by the way. I already have 42k in interest-bearing current accounts and have maxed out my SIPP.)

dunstonh

I have £50k protected under the "ISA wrapper".

it is £50k per fund house. Not £50k per wrapper.

Note that the £50k FSCS limit applies to investments. Not deposits. Deposits are £75k (rising to £85k).

martinsurrey

dunstonh wrote: »

it is £50k per fund house. Not £50k per wrapper.

Note that the £50k FSCS limit applies to investments. Not deposits. Deposits are £75k (rising to £85k).

I believe they meant protected from tax, not protected under the deposit protection scheme.

MONEYTREE_2

Thank you Martin. Of course that is what I meant!
I edited my post to make it clear that I meant in an ISA, nothing to do with the 75k thing

bowlhead99

MONEYTREE wrote: »

(I've searched all over MSE to find a better rate for the 50k but I cannot find better than that 1.31% by the way. I already have 42k in interest-bearing current accounts and have maxed out my SIPP.)

If you already have £42k in those high interest current accounts and regular savers and whatnot, you might well be getting £1k or more of interest anyway.

So the fact that the government now lets you earn £1k of interest tax free might be a red herring as far as the £50k Isa is concerned, because you have fully used up that £1k allowance with the money from the current accounts etc anyway?

Unless perhaps you already have lots of spare annual personal allowance or "starting rate for savings" zero rate band.

Anyway the basic task is:

a) bearing in mind *all* your other savings, incomes and assets, see what net income you would get after tax from having the £50k money in the best non isa account you can find

b) compare that with the amount you get inside the isa

See which one wins, that gives you a hint towards what might be the most efficient route using today's numbers. And you might find the isa account isn't the best.

However, run the numbers again imagining all the interest rates on all the accounts had gone up by a couple of percent (e.g. 3.3 and 3.0 instead of 1.3 and 1.0, and your current account money using up even more of your annual allowances). Depending on your other allowances you might find that at higher rates, which we might see in a few years depending on inflation etc., ISA less tax is better than non-ISA.

If you are in that position you should remind yourself about the limit of how much you can put back into a tax wrapper in a year (e.g. it's £20k a year from next April, so would take 3 separate tax years to fit £50k or five years to fit all 92 of it, if good current accounts go away. If you expect to have used up some of the £50k anyway in the next few years it might not be a big deal,

MONEYTREE_2

bowlhead99 wrote: »

a) bearing in mind *all* your other savings, incomes and assets, see what net income you would get after tax from having the £50k money in the best non isa account you can find

b) compare that with the amount you get inside the isa

See which one wins,

I can just about manage that bit.

It's £500 and £680.

I shall have to work on the rest. I get very confused by the jargon. I think I might have a kind of dyslexia, but with figures and money matters. Let me work on that ... and THANKS x

[Deleted User]

You could transfer the £50K to a flexible cash ISA (if it's not already in one) and withdraw it, except for the minimum balance. Put the nearly £50K into accounts with a greater rate of interest, factoring in the tax you might have to pay. Then in the last week of the tax year pay the nearly £50K back into the cash ISA to preserve it's tax free status for the future years.

MONEYTREE_2

"You could transfer the £50K to a flexible cash ISA (if it's not already in one) and withdraw it, except for the minimum balance. Put the nearly £50K into accounts with a greater rate of interest, factoring in the tax you might have to pay. Then in the last week of the tax year pay the nearly £50K back into the cash ISA to preserve it's tax free status for the future years."

You are a wily one!

I don't think it would be worth the hassle to be honest, to make about 0.3% extra for a few months.

premierfella

It wouldn't be for a few months. You can do that during the tax year, get the money back into the flexible ISA before the end of the current tax year, then draw it back out at the start of the new tax year. Rinse and repeat every year until the government changes the rules.

mxvqda's suggestion lets you have your cake and eat it. If the few basis points isn't worth the hassle (which I accept it might not be) that seems to point towards just leaving it in the ISA and preserving that tax free allowance IMO. The new tax free allowance is probably slightly more at risk of being removed by future Chancellors than the tax free status of prior and current year ISAs, so that needs to be accounted for in the calculations. There is no right answer really - all down to personal views of the future and one's circumstances.

MONEYTREE_2

Cheers everyone. I think you are right and a cash isa is the way to go

singhini

If your going to do a cash ISA, Virgin Money offer 1.51% for 5 year fix if its of any interest to you