To ISA or not to ISA

flamingredhead

I'm a 63 year-old woman with ~£53K in a 2-year ISA which is just about to mature. With the current low ISA rates, am I better to transfer the whole lot to a higher-earning ordinary savings account? Or would that be a foolish long-term idea? I'm very risk-averse, so not looking for anything other than safe savings really.

masonic

There's no way to avoid risk if saving over the long term. If you hold savings over say 20 years at a rate of about 1%, while inflation averages about 3%, then at the end of that period each £1000 would be worth only about £700 in today's money, equating to about a 30% loss in real terms.

However, if this is money that you need to spend within the next few years, you don't need to worry about that, and it would be appropriate to stay in cash, and pick the account with the highest overall interest rate after accounting for any tax you'd pay. If you wished to keep the ISA status of the money, you could use a flexible ISA, making a flexible withdrawal at the start of each tax year, and replacing the money towards the end of each tax year. However, this would limit your choice of savings account to easy access, notice or fixed term accounts with terms of less than 1 year.

Miranda25

Masonic sorry, did I understand correct? I can take my cash ISA money and put them into savings a/c for 8 months and bring them back into cash ISA just before the end of tax year and my savings a/c will not be taxable? Anybody playing with money like that? Is it worth it? Thanks.

masonic

Miranda25 said:

Masonic sorry, did I understand correct? I can take my cash ISA money and put them into savings a/c for 8 months and bring them back into cash ISA just before the end of tax year and my savings a/c will not be taxable? Anybody playing with money like that? Is it worth it? Thanks.

You'd still earn taxable interest while the money was in a normal savings account (although you might not earn enough interest to consume your entire personal savings allowance and therefore pay any tax). Returning to the cash ISA allows you to keep your options open in case cash ISAs become more worthwhile in future, if the amount you have saved exceeds your annual ISA allowance as it does in the case of the OP.

badger09

Miranda25 said:

Masonic sorry, did I understand correct? I can take my cash ISA money and put them into savings a/c for 8 months and bring them back into cash ISA just before the end of tax year and my savings a/c will not be taxable? Anybody playing with money like that? Is it worth it? Thanks.

In case you missed it, see the part of masonic's post in my bold

masonic said:

There's no way to avoid risk if saving over the long term. If you hold savings over say 20 years at a rate of about 1%, while inflation averages about 3%, then at the end of that period each £1000 would be worth only about £700 in today's money, equating to about a 30% loss in real terms.

However, if this is money that you need to spend within the next few years, you don't need to worry about that, and it would be appropriate to stay in cash, and pick the account with the highest overall interest rate after accounting for any tax you'd pay. If you wished to keep the ISA status of the money, you could use a flexible ISA, making a flexible withdrawal at the start of each tax year, and replacing the money towards the end of each tax year. However, this would limit your choice of savings account to easy access, notice or fixed term accounts with terms of less than 1 year.

flamingredhead

Thanks for your advice.