What to do with an ISA

neb51

Hey all,

Not sure if this is the place to be or if I need to look at actual financial advice (£££), worth a go though!

So, I'm an early/mid 20 somethings and I have a few thousand sitting in a Loyalty cash ISA earning 0.55% interest.

I'm starting to pick up greater interest in my finances and how to make my money work for me (as well as saving). It has come to my attention that .55% interest on such a sum of money is actually pretty terrible, especially as it doesn't cover the cost of inflation (I think I'm right in saying this).

Has anybody gone through similar circumstances? Or have any advice on best practice? Or do I need to consider consulting a finance professional?

Thanks in advance!

Neb

Neil_Jones

Depends how much work you want to put into maximising your return. Note that the first £1000 of interest you don't pay tax on. Unfortunately all savings accounts pay less than inflation at the moment.

If you really go to town you can use the top easy access accounts, the top paying bank current accounts and the regular savings accounts, some of which pay up to 5%.

If you're less motivated you could just move the ISA to another provider that pays for a one year fix, but you can usually do better if nothing else to tip it into an easy access account which you can get paying 1.5% and you wouldn't have to pay any tax savings interest until it reaches somewhere around 65k.

Alexland

For a few thousand its unlikely to be worth paying for advice.

Yes loyalty doesn't often pay and your return is below inflation so it's spending power is being eroded.

To determine what to do with the money you need to understand how it links to your objectives.

Alex

xylophone

If you are not already a property owner, but hope to be at some point, had you considered a LISA?

https://www.moneysavingexpert.com/savings/lifetime-isas/

Other ISA rates here

https://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?

If not, you might consider opening one, taking £2,500 out of the ISA, depositing immediately in the Flex and paying in £1000 month (it can be taken out again immediately if desired) to get the 5% for a year.

You would also be eligible to open the 5% Regular Saver.

The interest would be taxable but could be covered by the Personal Savings Allowance.

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

pramsay13

If you only have a few thousand you are better with a current account that pays decent interest.
Nationwide currently pays 5% on up to £2,500 for 1 year providing you pay in £1000 per month.
TSB and Tesco also have fairly good interest-paying current accounts.
Have a read of this page and don't spend money on financial advice.
https://www.moneysavingexpert.com/banking/

dont_use_vistaprint

Nationwide, TSB, Marcus. Even as a higher rate tax payer, the Marcus 1.5% instant access gives you about 0.5% more interest after tax than your ISA

neb51

Thanks for all your replies so far! I think Marcus has grabbed my interest (pardon the pun) if I'm honest!

The Nationwide deal seems interesting as well. Am I right in assuming with the Flexi account and the regular saver, you would earn somewhere in the region of around £200 in interest for the year?

Plus being a basic taxpayer, I wouldn't pay tax on this?

cloud_dog

Refer to post #4.

You should give some serious consideration to utilising a LISA should a house purchase be in your future. Doesn't need to be all of your savings but whatever you feel is appropriate. You will receive a 25% bonus for your deposit, so £1000 turns in to £1250. But it can only be used for a house purchase or accessed at age 60.

Alexland

The problem is that without understanding more about your position/objectives it's hard to comment. For example is this your emergency money, are you saving to buy a car, a first house, a wedding, etc?

Yes the Nationwide Flex Direct will pay around £10 per month on a £2.5k balance for the first 12 months and the associated Regular Saver will pay around £80 at the end of the year. You can earn another £100 each if an existing member refers you to switch to Nationwide.

https://www.nationwide.co.uk/products/current-accounts/our-current-accounts/recommend-a-friend-tab

In terms of tax on interest...
https://www.moneysavingexpert.com/savings/personal-savings-allowance/

Alex.

dont_use_vistaprint

neb51 wrote: »

Plus being a basic taxpayer, I wouldn't pay tax on this?

That's correct, the first £1K of interest is tax free, so no benefits of using an ISA when current and saving accounts pay more interest.

If you earn more than £1K in interest and/or pay higher rate tax, an ISA may have some use

neb51

So the objective is to grow this sum of money into a nice house deposit, although I cannot guarantee I'll buy in the UK.

This means the LISA is a risk with 25% withdrawal penalty and the HISA is a risk because if I withdrew, even with no penalty, losing the bonus/ no interest is a penalty in itself. Hm.