Little advice on ISA's for a newbie

Dale_02

Hi all,

I'm new to savings and ISA's, so go easy on me. I'm sure these questions will have been asked but I can't find anything

1. You can put in £20,000 each (Tax free)
We are looking to both put the maximum £20,000 into an ISA right away. And leave it there.
Obviously the interest we then earn will take this above the allowed £20,000 - Will this still be tax free? Would we be better putting less than £20,000 in to make sure it doesn't go above?

2. Easy Access/Instant Access
We want easy access/instant access as we never know when we may need to dip into it (Hopefully never!). Am I right in thinking most of these easy access are as simple as transferring money back to our current account?

3. Any advice on the best easy access ISA's appriciated. Done some online comparison and can see Charter Savings at 1.44%
https://www.chartersavingsbank.co.uk/Products/ISAs


Thanks in advance

eskbanker

Dale_02 wrote: »

1. You can put in £20,000 each (Tax free)
We are looking to both put the maximum £20,000 into an ISA right away. And leave it there.
Obviously the interest we then earn will take this above the allowed £20,000 - Will this still be tax free? Would we be better putting less than £20,000 in to make sure it doesn't go above?

The annual allowance only limits the amount of money you pay into the account so, no, interest subsequently earned doesn't cause a problem and remains tax-free for as long as the money is retained within the ISA.

Dale_02 wrote: »

2. Easy Access/Instant Access
We want easy access/instant access as we never know when we may need to dip into it (Hopefully never!). Am I right in thinking most of these easy access are as simple as transferring money back to our current account?

Yes, although some may not be manageable online (most will be).

Dale_02 wrote: »

3. Any advice on the best easy access ISA's appriciated. Done some online comparison and can see Charter Savings at 1.44%
https://www.chartersavingsbank.co.uk/Products/ISAs

That's the top payer at the moment.

However, there are wider factors that you might wish to consider - depending on what your plans are for the money then it may make sense to choose a better-paying fixed-term product, as these must allow you to withdraw funds, even though they'll impose penalties for doing so.

Cash ISAs are also not as advantageous as they used to be, given poor rates in general and the 2016 introduction of the personal savings allowance, which enabled most savers to benefit from more interest in non-ISA accounts without paying tax.

Dale_02

eskbanker wrote: »

The annual allowance only limits the amount of money you pay into the account so, no, interest subsequently earned doesn't cause a problem and remains tax-free for as long as the money is retained within the ISA.

Yes, although some may not be manageable online (most will be).

That's the top payer at the moment.

However, there are wider factors that you might wish to consider - depending on what your plans are for the money then it may make sense to choose a better-paying fixed-term product, as these must allow you to withdraw funds, even though they'll impose penalties for doing so.

Cash ISAs are also not as advantageous as they used to be, given poor rates in general and the 2016 introduction of the personal savings allowance, which enabled most savers to benefit from more interest in non-ISA accounts without paying tax.

Thanks for the advice! Really appreciate it.

Of your personal opinion, what would be the better way to invest the money whilst also keeping it accessible?

We have around £100,000 that we would like to invest. I thought an ISA was the best option but only allowing us to save £40,000 between us both!

eskbanker

Dale_02 wrote: »

Of your personal opinion, what would be the better way to invest the money whilst also keeping it accessible?

We have around £100,000 that we would like to invest. I thought an ISA was the best option but only allowing us to save £40,000 between us both!

Interesting that you use the term 'invest', as this may well be an option to consider, as opposed to saving....

While it's often difficult to plan in detail, the best place to start will be to consider how much of the money you're likely to need and when - it would be unusual for someone to need easy access to £100K unless they were intending to buy a property or go on a spree of splashing out on flash cars and expensive holidays! So a key factor will be how much do you really need to be easily accessible on an ongoing basis?

An approach often recommended on here is to ring-fence an emergency 'rainy day' fund of, say, six months' typical income/expenditure to cover potential job loss, significant household items (e.g. boiler), etc, and then to put the rest (or most of it) in long-term investments where the money would be likely to outperform inflation - if you keep it all in cash deposit form then it's pretty much guaranteed to lose real-terms value (1.44% being demonstrably lower than current inflation).

Have you considered stocks and shares ISAs rather than cash ones?

Another angle to consider is pensions, which are usually a tax-efficient way of putting money aside for the long term.

To be honest though, it's difficult to be more specific without more knowledge of your full financial circumstances, in terms of age, income, tax, job status, family/dependents, health, property ownership, other assets and liabilities, attitude to risk, etc, etc....

Dale_02

Thanks again for the response.

Wilst we don't need the full £100k to be easily accessible, we'd like to have some accessible for areas you mentioned - potential job loss, house repairs and the most important one - health. We got the lump sum of money following a critical illness claim.
Although my partner is currently well, there is a chance that the cancer will return. So until we have gone 3 years "in the clear" we don't know that the future holds in terms of her health!

In the long term, if all goes well we are hoping to be in a position to pay off our mortgage, or at least a very, very big sum of it! But we still have 4 years left on our fixed rate mortgage.

So my position is - We wan't to put some money away that can gain us some interest over the next 4 years.
All being well we will not need to dip into this money, but there my be a time that we need to.

eskbanker

A further couple of considerations in light of your subsequent post then:

Do you have the option of paying anything extra off your mortgage? Some allow overpayments of up to 10% annually, which can be profitable if the mortgage rate exceeds what you'd earn in savings, although obviously this ties the money up if it's not a fully flexible product.

Also, a recommendation sometimes made on here is to use a 'bond ladder' approach if unsure of when money may be needed in future. This would entail splitting the money into chunks, some of it in easy access, some in a one-year fixed account, some in a two-year fix and so on, thereby benefitting from better rates while retaining some access.

Good luck....

Dale_02

Thanks!

We have just paid 10% off the mortgage and will do again when we can.

Will look into the other savings accounts etc.

Thanks for the help.