ISA or not to ISA

wallofbeans

Hi All,

I'm a little confused about whether I should get an ISA or not. I have 70k in savings, currently in a Zopa savings account that has just raised it's interest rate to 3.34%. I am a basic rate tax payer and want to keep most of this money easy access, but can put away 20k in an ISA for a year at most. 

Virgin Money have a 4.11% 1 year ISA - is that worth going for?

Stargunner

wallofbeans said:

Hi All,

I'm a little confused about whether I should get an ISA or not. I have 70k in savings, currently in a Zopa savings account that has just raised it's interest rate to 3.34%. I am a basic rate tax payer and want to keep most of this money easy access, but can put away 20k in an ISA for a year at most. 

Virgin Money have a 4.11% 1 year ISA - is that worth going for?

As a standard rate tax payer you are allowed to earn £1000 per year in interest without having to pay tax. £70k in Zopa will earn you around £2300 in interest in a year so you will be taxed 20% on £1300 of that plus 20% of interest from any other accounts you earn interest on. An Isa shelters interest from tax. You could put £20k in this tax year snd another 20k in from 6th April. If you didn’t want to lock it all away for a year you could put some in a 1 year fixed ISA and sone in an easy access or flexible ISA

wallofbeans

Stargunner said:

wallofbeans said:

Hi All,

I'm a little confused about whether I should get an ISA or not. I have 70k in savings, currently in a Zopa savings account that has just raised it's interest rate to 3.34%. I am a basic rate tax payer and want to keep most of this money easy access, but can put away 20k in an ISA for a year at most. 

Virgin Money have a 4.11% 1 year ISA - is that worth going for?

As a standard rate tax payer you are allowed to earn £1000 per year in interest without having to pay tax. £70k in Zopa will earn you around £2300 in interest in a year so you will be taxed 20% on £1300 of that plus 20% of interest from any other accounts you earn interest on. An Isa shelters interest from tax. You could put £20k in this tax year snd another 20k in from 6th April. If you didn’t want to lock it all away for a year you could put some in a 1 year fixed ISA and sone in an easy access or flexible ISA

Thank you! That 70k is the total of my savings. And I wouldn't want to lock away any more than 20k. Would it be worth putting another 20k in a lower rate easy access ISA, even if the interest is lower than the savings account. 

I wonder if the savings account rates will keep going up, they've risen a quite a lot in the last few months, so could they go beyond an ISA being worth it?

Stargunner

wallofbeans said:

Stargunner said:

wallofbeans said:

Hi All,

I'm a little confused about whether I should get an ISA or not. I have 70k in savings, currently in a Zopa savings account that has just raised it's interest rate to 3.34%. I am a basic rate tax payer and want to keep most of this money easy access, but can put away 20k in an ISA for a year at most. 

Virgin Money have a 4.11% 1 year ISA - is that worth going for?

As a standard rate tax payer you are allowed to earn £1000 per year in interest without having to pay tax. £70k in Zopa will earn you around £2300 in interest in a year so you will be taxed 20% on £1300 of that plus 20% of interest from any other accounts you earn interest on. An Isa shelters interest from tax. You could put £20k in this tax year snd another 20k in from 6th April. If you didn’t want to lock it all away for a year you could put some in a 1 year fixed ISA and sone in an easy access or flexible ISA

Thank you! That 70k is the total of my savings interest. And I wouldn't want to lock away any more than 20k. Would it be worth putting another 20k in a lower rate easy access ISA, even if the interest is lower than the savings account. 

I wonder if the savings account rates will keep going up, they've risen a quite a lot in the last few months, so could they go beyond an ISA being worth it?

You are only allowed to put in £20k each tax year in an ISA, so you don’t have long left to get £20k deposited in this tax year. £30k in Zopa  will use up your tax free allowance, so you would be better off with £40k in ISA’s. You would be better off  earning 3% in an easy access ISA than having it in Zopa. If savings rates go up ISA rates also generally go up. The general consensus is that we are around  the peak 

Albermarle

I wonder if the savings account rates will keep going up, they've risen a quite a lot in the last few months, so could they go beyond an ISA being worth it?

There is always a calculation to make, as although with a non ISA account you will pay 20% tax on interest above £1000, the non ISA interest rates tend to be a bit higher.

It is not easy because over the years, the difference/gap in interest rates varies between equivalent non ISA and ISA savings accounts. Currently for example the best non ISA easy access account pays 3.4% and the best easy access ISA pays 3.2% , so this would mean the ISA is better. In the past this gap has been bigger meaning the non ISA would be better.

That 70k is the total of my savings interest.

Wow you must have a lot saved  !

wallofbeans

Albermarle said:

That 70k is the total of my savings interest.

Wow you must have a lot saved  !

I wish! That was a typo. 70k is the total of my savings. 

jimjames

wallofbeans said:

Stargunner said:

wallofbeans said:

Hi All,

I'm a little confused about whether I should get an ISA or not. I have 70k in savings, currently in a Zopa savings account that has just raised it's interest rate to 3.34%. I am a basic rate tax payer and want to keep most of this money easy access, but can put away 20k in an ISA for a year at most. 

Virgin Money have a 4.11% 1 year ISA - is that worth going for?

As a standard rate tax payer you are allowed to earn £1000 per year in interest without having to pay tax. £70k in Zopa will earn you around £2300 in interest in a year so you will be taxed 20% on £1300 of that plus 20% of interest from any other accounts you earn interest on. An Isa shelters interest from tax. You could put £20k in this tax year snd another 20k in from 6th April. If you didn’t want to lock it all away for a year you could put some in a 1 year fixed ISA and sone in an easy access or flexible ISA

Thank you! That 70k is the total of my savings. And I wouldn't want to lock away any more than 20k. Would it be worth putting another 20k in a lower rate easy access ISA, even if the interest is lower than the savings account. 

An ISA doesn't mean locking your savings away, it's just a tax wrapper. There are options for fixed rates over various time periods if you so choose. An ISA does mean that you can always access your money although it's likely to involve a penalty of a number of days interest.
Even if you did lock some money away do you really need access to £50k instantly?

zagubov

To clarify, if you'd put 20k in a cash ISA this year, does that mean there's no point opening a Stocks and Shares ISA this year as you'd have reached the 20k ISA limit?
Or can they both receive 20k each?

eskbanker

zagubov said:

To clarify, if you'd put 20k in a cash ISA this year, does that mean there's no point opening a Stocks and Shares ISA this year as you'd have reached the 20k ISA limit?
Or can they both receive 20k each?

£20K is the total allowance so if you've already paid £20K into a cash ISA then you can't contribute to another one of any type until Thursday, although that doesn't prevent you from opening ISAs and either leaving them unfunded or transferring in....