Cash ISA conundrum

Aged

Still trying to solve the cash ISA conundrum. When my other 1YR fixed rate cash ISA matured some months ago, the alternative interest rates on offer were so low that I decided it was no longer worth keeping the money in a cash ISA.  I withdrew it and put it into NS&I Income Bonds, which at the time paid a better rate and was risk free. As we all know, the NS&I rate is now practically non-existent so I'm regretting that decision somewhat.
Maturity time approaches for my second ISA and it seems like there are no good reasons to continue holding this investment in cash, whether within an ISA wrapper or elsewhere, as it will not keep pace with inflation. I think now is the time to accept a little bit of risk, and consider a Stocks and Shares ISA. My initial thoughts are using something like one of the Vanguard Target Retirement funds (as my official retirement age is looming in a few years), a LifeStrategy fund or something of that sort to keep it simple and keep costs down. I would be grateful for any comments re whether my thought process is sound.

masonic

Yes. it could be sensible to invest some of the cash in a S&S ISA. I presume you are already using Premium Bonds, which remain relatively attractive. The Target Retirement funds are more geared towards those looking to use the whole sum to purchase an annuity at a specific time, whereas LifeStrategy would be a more appropriate choice for someone looking to remain somewhat invested through retirement (i.e. while you'd be looking to hold for at least 5-10 years). Despite the low returns on offer for cash, it still has better prospects than Government bonds in my view, so retaining a healthy sum in cash and going for a proportionately higher risk fund in the series would be something to consider (not avoiding bonds completely, though). It will be the equities portion that will hopefully do the heavy lifting.

jimjames

A few things to think about. Depending on your age, retirement plans and pension provision you may want to think about different funds that you'd have in the S&S ISA. The Target retirement funds are normally designed to be cash or near cash at a certain point in time. If this money is for long term and not a specific date then I'm not sure that would be appropriate.
If your pension provision is final salary then as you know your income is fixed you may be happy to take some more risk with the S&S ISA than if all your income is based on investment performance. If you have a DC scheme and plan on using drawdown then that may have a different impact than if you are taking cash or an annuity.

Remember that if you are age 60 (based on the retirement being a few years away) then you could have 20+ years of retirement that you need to have money to cover so having some inflation protection would be beneficial.
Also bear in mind that not all your money needs to be in the same thing so mixing cash ISA and S&S ISA proportions will allow you to balance the risk you are happy to have in the portfolio.

Albermarle

If you have aDC pension ( not final salary ) then you can also consider increasing your contributions to this .
Especially if you are actually investing for retirement as you will get a tax benefit compared to a S&S ISA .

Aged

masonic said:

Yes. it could be sensible to invest some of the cash in a S&S ISA. I presume you are already using Premium Bonds, which remain relatively attractive. The Target Retirement funds are more geared towards those looking to use the whole sum to purchase an annuity at a specific time, whereas LifeStrategy would be a more appropriate choice for someone looking to remain somewhat invested through retirement (i.e. while you'd be looking to hold for at least 5-10 years). Despite the low returns on offer for cash, it still has better prospects than Government bonds in my view, so retaining a healthy sum in cash and going for a proportionately higher risk fund in the series would be something to consider (not avoiding bonds completely, though). It will be the equities portion that will hopefully do the heavy lifting.

Hi masonic, thanks for commenting. No I'm not into Premium Bonds yet, but I intend to convert some of the cash I have in Income Bonds to Premium Bonds up to the maximum, as that seems the most sensible course of action. I will probably remove the rest of the cash from the Income Bonds and find a better home for it. I take your point about the Target Retirement funds not being the most appropriate in this case - something I hadn't thought of.

Aged

jimjames said:

A few things to think about. Depending on your age, retirement plans and pension provision you may want to think about different funds that you'd have in the S&S ISA. The Target retirement funds are normally designed to be cash or near cash at a certain point in time. If this money is for long term and not a specific date then I'm not sure that would be appropriate.

OK, thanks for pointing that out.

jimjames said:
If your pension provision is final salary then as you know your income is fixed you may be happy to take some more risk with the S&S ISA than if all your income is based on investment performance. If you have a DC scheme and plan on using drawdown then that may have a different impact than if you are taking cash or an annuity.

No, I have neither final salary nor DC pensions. All income as you say 'based on investment performance', hence why my main concern re cash holdings (until now) has been to protect against inflation, and avoid risk.

jimjames said:
Remember that if you are age 60 (based on the retirement being a few years away) then you could have 20+ years of retirement that you need to have money to cover so having some inflation protection would be beneficial.
Also bear in mind that not all your money needs to be in the same thing so mixing cash ISA and S&S ISA proportions will allow you to balance the risk you are happy to have in the portfolio.

Yes, I will give it some more thought then, thanks.

Aged

Albermarle said:

If you have aDC pension ( not final salary ) then you can also consider increasing your contributions to this .
Especially if you are actually investing for retirement as you will get a tax benefit compared to a S&S ISA .

Hi Albermarle I'm not contributing to any pensions as I'm not earning. I understand I could make limited contributions and have them topped up by the government, but I was previously advised that this was probably not worth the effort.

Aceace

Hi Aged,

Even if you're not earning you can contribute £2,880 to a SIPP per year up until the age of 75. The government will top this up to £3,600 (so £720) free cash. You don't have to invest this if you don't want to. If you withdraw the cash 25% of it will be tax free, but you will be liable for income tax on the other 75%. However, as you're not earning there may be no tax to pay. You can do this via the Vanguard platform (since you're already considering them for S&S ISA investments).

I agree that premium bonds are probably the best risk free savings return right now for someone looking to save for your time frame.

Another option for recycling some of your cash ISA funds into investments for shorter periods than is usually recommended for equities, would be to transfer them to an IFISA. Like all investments your capital would then be at risk, but in return you get a much higher return than for savings. The lowest risk IFISA IMO would be a platform called Loanpad. They offer an account with 1 day access that pays 3% and one with 60 days access that pays 4%. Access times can't be guaranteed, so don't treat it as a savings account, but the stated access times have been maintained to date, including throughout the Covid19 crisis. I've tested these withdrawals many times with 5 figure sums without any problems. 

Aged

Aceace said:

Hi Aged,

Even if you're not earning you can contribute £2,880 to a SIPP per year up until the age of 75. The government will top this up to £3,600 (so £720) free cash. You don't have to invest this if you don't want to. If you withdraw the cash 25% of it will be tax free, but you will be liable for income tax on the other 75%. However, as you're not earning there may be no tax to pay. You can do this via the Vanguard platform (since you're already considering them for S&S ISA investments).

I agree that premium bonds are probably the best risk free savings return right now for someone looking to save for your time frame.

Another option for recycling some of your cash ISA funds into investments for shorter periods than is usually recommended for equities, would be to transfer them to an IFISA. Like all investments your capital would then be at risk, but in return you get a much higher return than for savings. The lowest risk IFISA IMO would be a platform called Loanpad. They offer an account with 1 day access that pays 3% and one with 60 days access that pays 4%. Access times can't be guaranteed, so don't treat it as a savings account, but the stated access times have been maintained to date, including throughout the Covid19 crisis. I've tested these withdrawals many times with 5 figure sums without any problems. 

Hi Ace and thanks for your input. I'll certainly look into the SIPP thing again and give it some consideration. IFISA, that's peer-to-peer lending isn't it? Again I'll check it out but my gut instinct is that it's not for me.

Aged

Hi folks I've been doing a bit of reorganising re cash reserves and I'm confident that I have more than enough to fall back on - if anything, there's too much as I still have a reasonable sum in NS&I Income Bonds earning an insulting 0.01%. I'm intending to find another home for that, but at the moment I need to press on with the fixed rate ISA which will mature in a matter of days. I think that I want to transfer the whole of this sum into a stocks and shares ISA, and invest it into one of the LifeStrategy funds (not sure yet which one, will study the risk profiles thoroughly before deciding). Does this approach seem sound? All comments welcome.

liamlawlor

I have a Ratesetter cash ISA. Do you know which providers accept a TRANSFER IN from Ratesetter. I looked at Cynergy but Ratesetter is not on their list?