ISA or savings account

BabuBabu

Newbie here. First post.

I am trying to get my act together re: my finances. At the moment, I have £2000 languishing in a 0.5% ISA and I know I need to move it but I feel paralysed by the fear that I will end up choosing the wrong product. Should I move it to a savings account (and will I lose interest if I do this? Does it even matter on 0.5%) or transfer it to another ISA? Interest is paid in August, I don't pay higher taxes and I don't have any other savings yet.

Dazed_and_confused

If you move it out of an ISA any interest you receive will, based on your op, be liable to tax however there is a strong chance that it will fall to be taxed at one of the two 0% tax rates which apply to savings interest.

From a financial perspective you are unlikely to find it difficult to find a non ISA account which generates a better return than 0.5%.

Even if you had to pay 20% tax you only need to be getting above 0.625% to earn more overall.

You may of course want to retain the ISA for other reasons but none particularly spring to mind in the circumstances outlined.

xylophone

http://www.thisismoney.co.uk/money/saving/article-1583864/Best-savings-rates-Isas-Cash-Isa-accounts-fixed-rate-Isas.html

Have you ever had a Nationwide Flexdirect current account?
You could get 5% for a year on your £2000 - you would just need to cycle in/out £1000 a month from a non Nationwide account.

If pushed you would Faster Pay out £1000 from the NW account into an exterior account and FP it back in again.

https://www.nationwide.co.uk/products/current-accounts/flexdirect/features-and-benefits

bostonerimus

The gains you get inside an ISA are tax free.....why would you move your money outside of an ISA?....unless after tax you can get a better return outside the ISA.

BabuBabu

Thanks for the replies.

I have flexaccount, with less than £1000 going into it. The FlexDirect is great at 5% but I know that I am really nowhere near organised enough to keep taking money out of it and putting it back in, month after month.

ValiantSon

bostonerimus wrote: »

The gains you get inside an ISA are tax free.....why would you move your money outside of an ISA?....unless after tax you can get a better return outside the ISA.

The OP has £2000 in savings and is a basic rate taxpayer. They would have to be getting a rate of interest over 50% to end up paying any tax on that sum! If you know where I can get a 50% interest rate on a savings account then do please let me know!

Cash ISAs, currently, are generally paying less interest than non-ISA accounts. It therefore makes perfect sense not to use an ISA unless you are close to breaching the savings allowance, and even then the difference in interest rate may still be worth paying the tax on.

ValiantSon

BabuBabu wrote: »

Thanks for the replies.

I have flexaccount, with less than £1000 going into it. The FlexDirect is great at 5% but I know that I am really nowhere near organised enough to keep taking money out of it and putting it back in, month after month.

Set up standing orders to automate the process.

Tom99

With your total savings you are nowhere near the £1,000 tax free allowance so put the money where it will gain the most interest, that will almost certainly be outside an ISA.

slinga

BabuBabu wrote: »

Newbie here. First post.

I am trying to get my act together re: my finances. At the moment, I have £2000 languishing in a 0.5% ISA and I know I need to move it but I feel paralysed by the fear that I will end up choosing the wrong product. Should I move it to a savings account (and will I lose interest if I do this? Does it even matter on 0.5%) or transfer it to another ISA? Interest is paid in August, I don't pay higher taxes and I don't have any other savings yet.

Start a S&S ISA.

Just put say GBP 200 into something like Old Mutual UK Mid Cap and see how it goes for a year.
If you gain confidence you can then increase the amount as and when.
Even with the recent pull back this fund has increased by 20% in 12 months.
There are many funds similar to this.

toothdoctor

You want to retain the tax free status as rates on cash ISAs may increase in the future. I have been reading lots on ISAs via this forum and it amazes me that no one mentions the advantages of the flexible ISA. The OP has £2000 in an ISA (I assume non flexible) If this is taken out of the ISA wrapper then you lose the tax free status on this amount forever. Yes at the moment the OP is unlikely to earn over the PSA of £1000 at current rates but what if rates rise? Would be good to know that the £2000 is sheltered from the tax man in future years. Transfer the money to a flexible ISA, take the money out and put in a normal savings account with higher interest and then return the money to the ISA by 5th April. You can then withdraw from ISA again on the 6th of April and do the same. That way at least the tax free status on the £2000 is retained. Cash ISAs are not dead you just need to know how to take advantage of the rules to work in your favour.

Tom99

toothdoctor wrote: »

You want to retain the tax free status as rates on cash ISAs may increase in the future. I have been reading lots on ISAs via this forum and it amazes me that no one mentions the advantages of the flexible ISA. The OP has £2000 in an ISA (I assume non flexible) If this is taken out of the ISA wrapper then you lose the tax free status on this amount forever. Yes at the moment the OP is unlikely to earn over the PSA of £1000 at current rates but what if rates rise? Would be good to know that the £2000 is sheltered from the tax man in future years. Transfer the money to a flexible ISA, take the money out and put in a normal savings account with higher interest and then return the money to the ISA by 5th April. You can then withdraw from ISA again on the 6th of April and do the same. That way at least the tax free status on the £2000 is retained. Cash ISAs are not dead you just need to know how to take advantage of the rules to work in your favour.

[FONT=Verdana, sans-serif]Maybe follow your advice once they have at least £20,000 in savings, til then there is plenty of headroom to put all the savings back in an ISA if rates improve.[/FONT]