Should I pay into a cash ISA, or carry on in S&S ISA?

dllive

Hi guys

Im a higher rate tax payer. Ive already used £10k of my 23/24 ISA allowance in a S&S ISA. All previous 10 years' ISAs are in S&S ISAs.

Now that cash rates are getting a bit more reasonable (putting inflation aside for a moment) Im thinking of putting my remaing £10k allowance into a 1 or 2 year fixed, probably Natwest which is paying 5.7%

I have the £10k as cash. Im fairly cash heavy at the moment, but the vast majority of my savings are invested in passive Vanguard funds.

Being a higher rate payer, im being taxed 40% on my existing cash interest.

Im not sure what Im asking TBH. Just wanting a few opinions on what you would do in my situation. I suppose Im fairly nervous about having nearly all of my wealth in the markets (albeit global passive funds).

I dont foresee needing cash anytime soon, so happy to have it locked away. I suppose I could pay additional contributions into my pension.

If I do chuck £10k into a cash ISA which is fixed for 2 years, then at least thats £10k I dont need to think about for another couple of years.

Anyway, just wanted to ask for your opinions. I always learn something new when I post on here.

Thanks

Doctor_Who

I suppose I could pay additional contributions into my pension.

As a 40% tax payer I would say you've answered your own question!

thegentleway

Saving vs investment shouldn't be determined by interests rates; it's when you need the money: short term = savings, long term = investments.
Maybe you're invested above your risk level if you are nervous about current investments?
Prioritising pension is usually the right answer at 40% tax bracket.

dllive

thegentleway said:

Prioritising pension is usually the right answer at 40% tax bracket.

Yes, youre probably right. Its taken me years to come to this conclusion. Last year was the first year I made a load of contributions to my pension, effectively taking me down to almost a basic rate payer. I cant believe I spent so many years paying so much at the higher rate! 

ColdIron

dllive said:

thegentleway said:

Prioritising pension is usually the right answer at 40% tax bracket.

I cant believe I spent so many years paying so much at the higher rate! 

You can make amends. The Annual Allowance is now £60,000 (gross) and if that isn't enough and you have the earnings to support it you can go back 3 years with Carry Forward

Doctor_Who

dllive said:

thegentleway said:

Prioritising pension is usually the right answer at 40% tax bracket.

Yes, youre probably right. Its taken me years to come to this conclusion. Last year was the first year I made a load of contributions to my pension, effectively taking me down to almost a basic rate payer. I cant believe I spent so many years paying so much at the higher rate! 

I was a '40%' tax payer for the last ~15 years of my working career.....however, by making strategic annual contributions to my SIPP I never actually paid any 40% tax! HMRC increased the basic rate tax band by the gross SIPP contribution in my SA calculation and the revised band was always more than my taxable income.

DietIrnBru

Does it have to be an either / or? What is the destination for the S&S fund? Time frame and target amount. If you're wanting more short to medium term cash to be available then by all means open a Cash ISA and build up your target amount - be it for an emergency fund, pending purchases etc. While the pension is tax efficient given your 40% bracket - remember there is living to be done in the here and now - retirement comfort is important - but arriving there not broken is also important - invest in yourself. Once cash is in the pension - its out of reach for many decades.

MX5huggy

It’s a function of particular timing and doesn’t give the full picture but Vanguard FTSE Developed World (VEVE) is up 11.1% June 2022 to June 2023. Stocks is the only way you might beat inflation compared with cash which you know will loose. Interest rates are now in a more normal range compared with long term averages, stocks outperformed cash over the long term when interest rates were normal in the past there’s no reason to believe they won’t again. 

LHW99

You can always put it in a cash ISA and transfer it to S&S at a later time

Stargunner

MX5huggy said:

It’s a function of particular timing and doesn’t give the full picture but Vanguard FTSE Developed World (VEVE) is up 11.1% June 2022 to June 2023. Stocks is the only way you might beat inflation compared with cash which you know will loose. Interest rates are now in a more normal range compared with long term averages, stocks outperformed cash over the long term when interest rates were normal in the past there’s no reason to believe they won’t again. 

VEVE is still down from November 2021 to now, so if you had of purchased it around then it would have not done very well against inflation. I know that the timeframe is still too short to judge, but shows how particular timing can have a major effect.

Linton

The appropriate choice of Pension vs S&S ISA vs savings is mainly determined by when you want to access the money...

long term retirement: Pension
medium-long term but before you are 55/57: S&S ISA
0->5 years: Cash savings/cash ISA