GIA vs. Savings accounts.

JakeHyde

Hi everyone...  me again 🙄

This is 'kind' of a theoretical question, but more of an open conversation...

So after watching this video:
https://youtu.be/MjTGpvTzxv8 

I've never even considered how Capital Gains could be use to an advantage.

I was always told 'Tax was Bad', and avoid it as much as possible. Listening to good ol' Toby Newbatt about Cashing out of all your general investment accounts to make use of this years Capital Gains Allowance: 
https://youtu.be/RlvBuBVf-hg

So, I've been listening to all the advice about filling your ISA first (Both L-ISA and S&S ISA).
 
And I've avoided GIA's and Buying Bitcoin etc, due to the Capital Gains implications, I thought it wasn't worth bothering with.

I've been maxing my ISA these last two years, meanwhile I have the majority of my savings just sitting in high interest (5-6%) banks and NS&I etc. Thinking I was doing the best I can.

A lot of people have warned me off property, saying there is no profit to be had, and it's not passive...  So I was trying to find an alternative way to make my savings get to work. Thinking a S&S ISA was the only way.

But, after seeing the video about sneaky Sunak paying just 20% on Capital gains, it got me thinking.  Maybe I could stick a big lump of my savings in a GIA (presuming the market still yields 10-15% on average over 10 years), and take the hit on capital gains?  Surely even after tax, that would yield a better result than just 5% interest from a bank? Right? 🤷🏻‍♂️

Assuming you've maxed out your allowances, what would you do with £50-100k?
I'd love to hear your thoughts.  🙏

aroominyork

Is it better, over the long term, to invest and pay capital gains than have money sitting in the bank? Yes.

Should you expect the market (presumably stock market) to return 10-15% a year? Despite that being a wide range, No.

(Have not watched your videos.)

Audaxer

JakeHyde said:

But, after seeing the video about sneaky Sunak paying just 20% on Capital gains, it got me thinking.  Maybe I could stick a big lump of my savings in a GIA (presuming the market still yields 10-15% on average over 10 years), and take the hit on capital gains?  Surely even after tax, that would yield a better result than just 5% interest from a bank? Right? 🤷🏻‍♂️

Assuming you've maxed out your allowances, what would you do with £50-100k?
I'd love to hear your thoughts.  🙏

I think 10-15% over 10 years is very optimistic, even if you invest it in 100% equities.

I don't see a problem with having a significant amount in savings at 5% interest, as it's probably a better rate and safer at present than investing part of your overall portfolio in bonds.

EthicsGradient

JakeHyde said:

Hi everyone...  me again 🙄

This is 'kind' of a theoretical question, but more of an open conversation...

So after watching this video:
https://youtu.be/MjTGpvTzxv8 

I've never even considered how Capital Gains could be use to an advantage.

I was always told 'Tax was Bad', and avoid it as much as possible. Listening to good ol' Toby Newbatt about Cashing out of all your general investment accounts to make use of this years Capital Gains Allowance: 
https://youtu.be/RlvBuBVf-hg

So, I've been listening to all the advice about filling your ISA first (Both L-ISA and S&S ISA).
 
And I've avoided GIA's and Buying Bitcoin etc, due to the Capital Gains implications, I thought it wasn't worth bothering with.

I've been maxing my ISA these last two years, meanwhile I have the majority of my savings just sitting in high interest (5-6%) banks and NS&I etc. Thinking I was doing the best I can.

A lot of people have warned me off property, saying there is no profit to be had, and it's not passive...  So I was trying to find an alternative way to make my savings get to work. Thinking a S&S ISA was the only way.

But, after seeing the video about sneaky Sunak paying just 20% on Capital gains, it got me thinking.  Maybe I could stick a big lump of my savings in a GIA (presuming the market still yields 10-15% on average over 10 years), and take the hit on capital gains?  Surely even after tax, that would yield a better result than just 5% interest from a bank? Right? 🤷🏻‍♂️

Assuming you've maxed out your allowances, what would you do with £50-100k?
I'd love to hear your thoughts.  🙏

"GIA's and Buying Bitcoin" are such totally different things that it's meaningless to put them together in the same sentence. Bitcoin is a gamble on human nature; it's unpredictable, and not "investing". There's no point in trying to include it in this discussion.

First, decide when you might actually spend this money; if not until retirement for some of it, then a pension could be a better place for that. And decide how much you'd like in cash to feel secure, or spend soon (house deposits, spending on family, ...).

What to do could depend on if you're a higher rate taxpayer. If you are, your zero rate savings band is just £500, from about £10k savings at the moment (maybe a bit more in the coming few years, with interest rates likely to go down a little). A basic rate payer gets £1000, so about £20k. If you want more than either of those for low risk savings, then a cash ISA might be worth thinking about.

If you have £50k in a GIA, your annual capital gain might be about £3k, so with the current allowance, you could realise that all without tax each year (but that means selling it all and buying something else, or a lot of the more profitable bits). £100k would probably average more than £3k capital gain each year. So you might want to balance what capital gains might build up (and income tax on dividends) that you could end up paying at some time versus income tax on cash you want to keep above the level the PSA gives you.

JakeHyde

EthicsGradient said:"GIA's and Buying Bitcoin" are such totally different things that it's meaningless to put them together...

Valid point about Bitcoin. I know it's more of a gamble than actual investing. The only reason I included it, is because it would also be susceptible to capital gains allowance. 

JakeHyde

Audaxer said:

I think 10-15% over 10 years is very optimistic, even if you invest it in 100% equities.

I don't see a problem with having a significant amount in savings at 5% interest, as it's probably a better rate and safer at present than investing part of your overall portfolio in bonds.

What can I say, I'm an optimistic guy. 😛 But yeah I do agree.
  

How I came to 10-15% - Business Insider says:

• The S&P 500 has gained about 10.7% on average annually since it was introduced in 1957. 
• The index has done slightly better than that in the past decade, returning about 12.39% annually.

And right now my S&P500 is sitting at 20.84% over these past 2 years.  I appreciate there could be a massive tumble... even as soon as this year.

Call me a naive hopeful 😇