Who are Cash ISA's useful for?

jeelz

I’m due to retire soon and at that point will be in the fortunate position of having some cash to invest from the sale of my business. For the past couple of years I have been using flexible cash ISAs as a placeholder for this money. (All my “real’ cash is being used to boost pensions).
Towards the end of each tax year money is borrowed, from the business and parents, to max out the flexible ISA and returned a week or two later in the new tax year. When the business is sold this year I will immediately be able to put £120,000 into these ISAs before moving it to a stocks and shares ISA.

Rusty190

I'm a cash ISA fan as I don't want to get involved with the tax man - it terrifies me.
I may spontaneously combust if I had to start keeping track of tax stuff in addition to the rest of life's admin.
I'm an old woman though, so I don't need to be a millionaire.
Some things are worth more than money - peace of mind being one of them.

msallen

I no longer do this because I've pulled out of P2P, but I used to use cash ISA's as a means of spreading my allowance across multiiple IFISAs. 
For example you could put 20K into a Cash ISA in March and then a few weeks later (the following tax year) transfer £4K each into 5 different IFISAs.

Bigwheels1111

I’m emptying my isa in under 2 weeks.
Rates are terrible compared to fixed savings.
Will stash the cash in say Chase at 1.5% until December, then decide what to do after hopefully 4 more base rate rises.
Im hoping for 5 y fixed rate of 4% or 5% paid annually.
my 3 pots should give me a nice income for a while.
I can get 15k of interest tax free, just need to fill out tax return if over 10k.

SonOfPearl

When my fixed rate ISAs expire they usually become flexible variable ISAs. So I transfer most of the money to non-ISA accounts with better rates and only transfer the money back into the ISA at the financial year-end for a few days to keep the ISA allowance. For me, that's the best of both worlds. 

eastmidsaver

for years i've held an easy access cash isa,  even when rates were really low and other savings accounts were a bit better.
however, i've now finally took the plunge and ditched my funds out into normal savings accounts.  
some i've put in a 9 month fix.  the rest in easy access.   and the remainder being transferred to stocks and shares.
from my understanding,  you can earn £1k interest tax free.   so a cash isa is only useful for those who are exceeding this amount in interest.    they would also be useful if interest rates become 5 or 6% in the future,  but we probably still some way off that.

masonic

Type_45 said:

Cash ISAs are useful for people who want to stay in cash rather than participate in a downwards market.

However:  Wouldn't short-term bonds be a better option?

Near cash options that can be held in investment accounts normally underperform retail cash savings accounts, including the top cash ISAs. There is the hassle of transferring out, possibility that your provider doesn't support partial transfers, and delay when transferring money back in to reinvest it, but it may still be the best option for someone of your disposition.

Daliah

eastmidsaver said:

from my understanding,  you can earn £1k interest tax free.  

Tax-free amounts for savings interest could be substantially more than £1k, or as low as £0. It all depends on your other income.

See https://www.gov.uk/apply-tax-free-interest-on-savings

MDMD

eastmidsaver said:

from my understanding,  you can earn £1k interest tax free.

As is regularly pointed out here there is an important difference between tax free (which ISAs are) and “subject to 0% rate” (which is the PSA). 

It really does depend on the circumstances. For me, I pay 40% tax and max out my pension allowance so I can only get £500 PSA and historically this was used up by regular savers and current account interest.

The tax free income from an ISA doesn’t count towards taxable income and so my 1.6% Skipton Tracker ISA (no longer on sale) is somewhere I can store a house deposit until I need it later in the year on competition. If it was in a taxable account I would pay 40% on that.

Even if a S&S GIA were a good short term place for this cash, my CG allowance is used up by a pending SAYE gain so any gain in the GIA would be taxable.

The lack of record keeping, tax calculations  and paperwork required is a bonus of ISAs as well. I deal with the US tax authorities (there are hundreds if not thousands) in my day job and HMRC are mild in comparison to them….

Exodi

Seems Martin holds a similar view to me on Cash ISA's being useless for most people nowadays, as communicated in this weeks newsletter - https://www.moneysavingexpert.com/latesttip/

As the link is unlikely to work in a week or two, to quote:

Millions should DITCH cash ISAs
Though they're getting more attractive again for bigger savers

A decade ago you'd have often seen (a younger, slightly less grey, slightly heavier, and probably slightly faster talking) me on the telly, as usual, urging savers to use their cash ISA allowance or they'd lose it. As back then, money was nicer in an ISA, but...

• Most now DON'T pay tax on savings interest. The personal savings allowance (PSA) launched in 2016, allowing basic (20%) taxpayers to earn £1,000/yr of savings interest from any account, tax-free, and higher (40%) taxpayers £500. Top (45%) taxpayers don't get one.
  
  Do note that's the amount of INTEREST you can earn - so you need a lot of savings to generate it. At today's top easy-access rate, a basic-rate taxpayer would only pay tax on it if they'd £65,000+. That's why these days, most people - over 19 in 20 - don't actually pay tax on savings interest.
  
  
• So most should ditch cash ISAs as there's no gain and they pay less. A cash ISA's just a savings account you don't pay tax on. So as MOST PEOPLE don't pay tax on savings and CASH ISA RATES ARE USUALLY LOWER than normal savings, there's no benefit to them of saving in a cash ISA (though today's top easy-access cash ISA is the closest to top savings for a while).
  
  For years many had it drilled into them (often by me) that cash ISAs were nicer, and even though the PSA's been here for six years, many still need deprogramming. In March, my Twitter poll found 85% of the 9,000 who said they had cash ISAs don't pay tax on savings - they should be ditching them for higher interest rates from normal savings.
• Yet for bigger savers and/or higher-rate taxpayers, cash ISAs are becoming more worth it. Cash ISA interest doesn't count towards the PSA, so for those who have big enough savings or earnings to break that limit, it's a boon, as they can protect more savings from tax. You can put £20,000 per year in, so it can soon build up.
  
  And with interest rates rising, so is the web of who's caught as well, especially if you're getting the higher rates available via fixing. With a 3% fix, a basic-rate taxpayer would pay tax with more than £33,000 saved, a higher rate £17,000 - so top cash ISAs are worth it.
  
  Even with slightly less, if you're near the limit, as interest rates are likely to rise, keeping money in cash ISAs now can protect you from future tax. It's also worth noting you can withdraw money from fixed cash ISAs (unlike normal fixes) though you pay big interest penalties for doing so.