Fixed rate Cash ISAs - two questions!

threechoirs

Hi all,

We save some savings to put into cash ISAs. My husband has recently transferred into Virgin Money's fixed rate ISA with an amount of 80k that he has built up over time. Two questions - 

1. We have the option to add another 40k into this (or less) - 20k now and 20k in next April. Obviously this pushes us quite significantly over the 85k safety limit for one bank. While Virgin is FCS protected I wondered if anyone had any thoughts on this? Is it worth just taking the risk between now and next January when it matures? High interest savings wouldn't be very fruitful because DH is a higher rate tax payer - so he'd essentially lose close to half of the interest the ISA generates over the year. 

2. We also have the option to add another 40k (doing the same - 20k now and 20k in April) into an ISA for our 16 year old son to help with his future. It does seem like the fixed rates are slightly more competitive than easy access, and the easy access rates are likely to change over the course of the year. HOWEVER, I can't find any fixed rate ISAs that allow 16 year olds to have one - they have to be 18 I think. The only one I can find is with....Virgin   

Obviously even though they are both protected up to 85K in any case, having so much money with just one bank (and I don't think Virgin IS as secure as some of the big names) makes me nervous. Is it ultimately better to just put this into an easy access ISA for him? And can anyone advise on where we might be able to set this up without it being a total headache to do?! 

Thanks so much in advance. 

Rheumatoid

Use a different provider. Virgin no more/less secure than any other FSCS bank

threechoirs

Thanks. I realise in some ways this is a good problem to have - but surely there are a number of people who would have in excess of 85k in a cash isa and would want to top it up each tax year? (I know he could get an S&S ISA, but we don't want to take any risk for the foreseeable, for various reasons). 

ColdIron

threechoirs said:

Is it worth just taking the risk between now and next January when it matures? High interest savings wouldn't be very fruitful because DH is a higher rate tax payer - so he'd essentially lose close to half of the interest the ISA generates over the year.

I wouldn't do it. I'll happily go over the limit with easy access for a short period but not when I'm locked in. It's not worth the risk to squeeze a few extra tenths of a percent. Plenty of other fixes around

https://moneyfactscompare.co.uk/isa/fixed-rate-isas/?quick-links-first=false

An ISA is the obvious route as a higher rate taxpayer. I'm not a fan but have you considered Premium Bonds? They are tax free. How about a pension contribution? Very tax efficient. How far into higher rate is hubby? It could take him back to basic rate if not too far in

Is it ultimately better to just put this into an easy access ISA for him? And can anyone advise on where we might be able to set this up without it being a total headache to do?! 

An easy access ISA is another obvious route, plenty of those as well

https://moneyfactscompare.co.uk/isa/easy-access-cash-isas

threechoirs

Thank you coldiron. The problem with putting the funds into a pension is that we are likely to need to draw out in 2-3 years, so can't lock it up until we are over 55. 

I don't really understand how Premium Bonds work?! I know they are tax free, and the funds get pooled into a prize draw (which one has a very slim chance of winning) - but do they earn any interest?! If DH was to put 40k in Premium Bonds, what happens in a year's time? 

So that's DH...but my son is another issue! I think I probably shouldn't sign him up to Virgin also (plus it's an absolute headache to do!) but my concern with the Easy access is that rates will plummet over the course of the next year, which would be a shame, given he won't need to draw out any of this until he goes to uni. 

25_Years_On

threechoirs said:

Thanks. I realise in some ways this is a good problem to have - but surely there are a number of people who would have in excess of 85k in a cash isa and would want to top it up each tax year? (I know he could get an S&S ISA, but we don't want to take any risk for the foreseeable, for various reasons).

Reading between the lines here I think you might believe that you can have only one Cash ISA. When most people approach the £85000 they open a cash ISA with a different company. Or sometimes long before that.

refluxer

threechoirs said:

2. We also have the option to add another 40k (doing the same - 20k now and 20k in April) into an ISA for our 16 year old son to help with his future. It does seem like the fixed rates are slightly more competitive than easy access, and the easy access rates are likely to change over the course of the year. HOWEVER, I can't find any fixed rate ISAs that allow 16 year olds to have one - they have to be 18 I think. 

One important thing to be aware of is that if any money that you give to your son earns more than £100 in interest (or £200 if it's from both of you) then the whole lot is added to your savings income and taxed as if it were your own, even if it's saved in an adult ISA (where interest would normally be tax-free) in his name.

If the interest is likely to be over £200 and both of you have used up your various allowances, then the only way to avoid it being potentially subject to tax is to put it in a Junior ISA (£9k limit each tax year) or Premium Bonds (£50k total limit).

eskbanker

threechoirs said:

I don't really understand how Premium Bonds work?! I know they are tax free, and the funds get pooled into a prize draw (which one has a very slim chance of winning) - but do they earn any interest?! If DH was to put 40k in Premium Bonds, what happens in a year's time? 

Nothing, unless he chooses to do something - he'll still have £40K worth of premium bonds but should on average have won something like £1500 in prizes during that year (no interest as such though).

ColdIron

threechoirs said:

I don't really understand how Premium Bonds work?! I know they are tax free, and the funds get pooled into a prize draw (which one has a very slim chance of winning) - but do they earn any interest?! If DH was to put 40k in Premium Bonds, what happens in a year's time?

Not interest but prizes. With a full holding most people win something most months. For higher rate taxpayers they can make sense. You can take your money out any time

https://www.moneysavingexpert.com/savings/premium-bonds

I agree with @25_Years_On above, if you want an ISA just look for another provider

ColdIron

threechoirs said:

So that's DH...but my son is another issue! I think I probably shouldn't sign him up to Virgin also (plus it's an absolute headache to do!) but my concern with the Easy access is that rates will plummet over the course of the next year, which would be a shame, given he won't need to draw out any of this until he goes to uni.

Your son presumably doesn't work so could have most, if not all, of his £12,570 Personal Allowance available so unlikely to pay any tax anyway. An ISA might not be the best account for him. You might compare the rates on non-ISA accounts. It would give you more choice than just Virgin

threechoirs

@25_Years_On - okay now I'm very confused! I thought people were allowed ONE cash ISA and ONE stocks and shares ISA - but not more? 

@refluxer - I think applies to savings accounts, but not ISAs?