Who are Cash ISA's useful for?

Exodi

It may be that I've missed something (and please correct me if my understanding is incorrect), but I'm having trouble understanding who Cash ISA's would be useful for?

As an example:

'Low saver' (someone who is unlikely to exceed their ISA allowance): no difference between using a Cash ISA or any other savings product.

'Medium saver' (someone who is likely to exceed their ISA allowance): the ISA allowance is 20k, which is significantly larger than most would recommend for an emergency fund. Most might put the amount they don't need into a S&S ISA (e.g. put 5k in a Cash ISA for emergencies then 15k in a S&S ISA). The problem here is that money withdrawn from a Cash ISA for an emergency and then put back in (to my understanding) is counted as a new contribution against your allowance. So taking out 5k and putting it back in would use 10k of your ISA allowance. As this is shared with your S&S ISA, this limits the amount you can invest. Alternatively, putting the emergency fund in a non-ISA savings product would not effect your ability to invest in a S&S. There would also be no issues with reaching the savings allowance if the bulk of their money was invested in an S&S.

'Large saver' (loadsa dosh): after maxing out a S&S ISA, would many may feel they could earn more investing in a GIA (and paying tax on interest), than a Cash ISA paying 1-2% without tax?

It can't be used for large amounts of money for people with low risk (like inheritance) because of the allowance, so it seems soley aimed at people that are either higher or additional rate tax payers, with a sizeable amount of surplus income, but completely unwilling to put their money into any form of investment?.

But then I hear that Cash ISA's are significantly more popular than S&S ISA's (I think the last set of figures I saw said something like 3x more Cash ISA's were opened than S&S)?

Maybe I'm missing something...

Stubod

We used to have most of our savings in cash ISA's, but when ISA rates started to plummet we moved them all to S&S ISA's instead. Have not seen much point in cash ISA's since as you can normally better the savings rates in many other savings accounts. I suppose there could be an advantage in buildimg them up if you believed at some point that cash ISA rates would improve?   ie you can only save a max of £20k per year, so over 5 years you could have £100k (tax free), to transfer to a new higher rate provider....assuming there will ever be one!?

Thumbs_Up

Me, as a non tax payer, I have retained my 20k cash ISA from last tax year. Looks like my current saving accounts will be paying me  8k a year interest (this will go up of course due to interest rises to come). For this current tax year I will very likely invest in a 20k  S/S ISA.  

eskbanker

Exodi said:

Most might put the amount they don't need into a S&S ISA (e.g. put 5k in a Cash ISA for emergencies then 15k in a S&S ISA). The problem here is that money withdrawn from a Cash ISA for an emergency and then put back in (to my understanding) is counted as a new contribution against your allowance. So taking out 5k and putting it back in would use 10k of your ISA allowance.

Not if it's a flexible ISA and the money is returned before the end of the tax year:

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

Exodi said:

But then I hear that Cash ISA's are significantly more popular than S&S ISA's (I think the last set of figures I saw said something like 3x more Cash ISA's were opened than S&S)?

This site, among others, always recited the mantra that (cash) ISAs are worthwhile because of the tax advantages, but that differential was largely eliminated with the introduction of the personal savings allowance in 2016.  However, old habits die hard, and hence the number of posters who seem to automatically assume that cash ISAs are beneficial - there was a 2016 MSE opinion piece about whether the cash ISA was dead but it's now mostly incorporated in the main cash ISA page:

https://www.moneysavingexpert.com/savings/best-cash-isa/#accordion-content-620297425-0

eskbanker

Thumbs_Up said:

Looks like my current saving accounts will be paying me  8k a month interest (this will go up of course due to interest rises to come).

Is that a typo?  If not, you must have an astronomical amount in cash deposit form, way more than would normally be considered sensible - even if it was £8K a year it would still seem excessive, unless you have some major purchases coming up....

Thumbs_Up

eskbanker said:

Thumbs_Up said:

Looks like my current saving accounts will be paying me  8k a month interest (this will go up of course due to interest rises to come).

Is that a typo?  If not, you must have an astronomical amount in cash deposit form, way more than would normally be considered sensible - even if it was £8K a year it would still seem excessive, unless you have some major purchases coming up....

Corrected. Ready and waiting to buy a home next year.

Exodi

Thumbs_Up said:

eskbanker said:

Thumbs_Up said:

Looks like my current saving accounts will be paying me  8k a month interest (this will go up of course due to interest rises to come).

Is that a typo?  If not, you must have an astronomical amount in cash deposit form, way more than would normally be considered sensible - even if it was £8K a year it would still seem excessive, unless you have some major purchases coming up....

Corrected. Ready and waiting to buy a home next year.

It's more suprising to hear of people with ~£500k in a savings account (unless you've found a bank paying an astronomically high interest rate!).

Very jealous!

Exodi

eskbanker said:

Exodi said:

Most might put the amount they don't need into a S&S ISA (e.g. put 5k in a Cash ISA for emergencies then 15k in a S&S ISA). The problem here is that money withdrawn from a Cash ISA for an emergency and then put back in (to my understanding) is counted as a new contribution against your allowance. So taking out 5k and putting it back in would use 10k of your ISA allowance.

Not if it's a flexible ISA and the money is returned before the end of the tax year:

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

Exodi said:

But then I hear that Cash ISA's are significantly more popular than S&S ISA's (I think the last set of figures I saw said something like 3x more Cash ISA's were opened than S&S)?

This site, among others, always recited the mantra that (cash) ISAs are worthwhile because of the tax advantages, but that differential was largely eliminated with the introduction of the personal savings allowance in 2016.  However, old habits die hard, and hence the number of posters who seem to automatically assume that cash ISAs are beneficial - there was a 2016 MSE opinion piece about whether the cash ISA was dead but it's now mostly incorporated in the main cash ISA page:

https://www.moneysavingexpert.com/savings/best-cash-isa/#accordion-content-620297425-0

The information about flexible ISA's was very useful.

I think the sentiment from your post and links was pretty much in line with my assumption that Cash ISA's have very 'limited' use.

Just suprising that hordes of people continue to open them.

Thumbs_Up

Exodi said:

It's more suprising to hear of people with ~£500k in a savings account (unless you've found a bank paying an astronomically high interest rate!).

Very jealous!

Just to highlight how the wheel has turned that 500k was kept safely with NS&I earning a 0.01 % !  I let you do the maths how much interest I was getting a month back then.

Exodi

Thumbs_Up said:

Exodi said:

It's more suprising to hear of people with ~£500k in a savings account (unless you've found a bank paying an astronomically high interest rate!).

Very jealous!

Just to highlight how the wheel has turned that 500k was kept safely with NS&I earning a 0.01 % !  I let you do the maths how much interest I was getting a month back then.

Be lucky to buy a mars bar and a packet of crisps I expect!

Thumbs_Up

Exodi said:

Be lucky to buy a mars bar and a packet of crisps I expect!

Correct. Now it’s cigars and cognac .