New Cash ISA, don't currently have one - £27000 to save

darkovo

Hi,

I'm trying to help a relative with £27000 put their money somewhere that will gain as much interest as possible, but generally risk free. They shouldn't need access to the money for over a year at least.

They don't currently have an ISA, the money has been in a savings account, but the rate it going below 4% soon.

Would a cash ISA at around 5% be the best bet, putting £20K in there this month (2024-2025 tax year), and come April add the remaining £7K for the new 2025-2026 tax year depending on rate?

The only issue is finding a fixed rate for a year around 5%. It looks the the top rated cash ISA's are variable rate, so over a year could have dropped to 4% or less?

Trading 212 look good with its variable 5.05%, or would United Trust Bank with a fixed 4.54% be better?

Or somewhere else?

Thanks

darkovo

@tetrarch thanks. They are retired and living off pensions, not currently taking money from savings for anything.

Tax status is tax-free, a couple hundred below the standard personal tax allowance.

Thanks, we'll look at both the Trading 212 and United Trust Bank cash ISA's and decide between the 2.

jimjames

darkovo said:

Trading 212 look good with its variable 5.05%, or would United Trust Bank with a fixed 4.54% be better?

Or somewhere else?

Thanks

How are you defining better? Better rate or something else? If it's rate then 5.05% is better than 4.54% and will give an extra £135 per year.

refluxer

darkovo said:

@tetrarch thanks. They are retired and living off pensions, not currently taking money from savings for anything.

Tax status is tax-free, a couple hundred below the standard personal tax allowance.

Thanks, we'll look at both the Trading 212 and United Trust Bank cash ISA's and decide between the 2.

Bearing in mind each of them can earn up to £18,570 in combined pension and savings interest income without paying tax, it doesn't sound like they necessarily need an ISA for tax efficiency reasons, in which case an ISA would only make sense if it pays more than a non-ISA account.

For easy access, then it does indeed look like the best-paying easy access cash ISAs are paying a higher rate than the best non-ISA easy access accounts at the moment, but you should read through this ISA sub-forum first to see the issues people have had with those 5%+ providers, as they all have various quirks and pitfalls that mean a good understanding of the account T&Cs is essential. Most are app-based too, so they'd obviously need to be happy with app-only banking.
 
If they do want to lock the money away for a year, then the best 1 year non-ISA fixed savings accounts are generally paying more than their ISA equivalents at the moment. As money in one of those accounts will be completely inaccessible, it's worth noting that one potential benefit of a fixed rate ISA is that the money can be accessed (albeit with a penalty which can be fairly severe so you'd only want to do this in an emergency) in which case a small hit in the rate (vs the non-ISA account) may be worth it for some. 

Isarulesaretoocomplex

darkovo said:

Hi,

I'm trying to help a relative with £27000 put their money somewhere that will gain as much interest as possible, but generally risk free. They shouldn't need access to the money for over a year at least.

They don't currently have an ISA, the money has been in a savings account, but the rate it going below 4% soon.

Would a cash ISA at around 5% be the best bet, putting £20K in there this month (2024-2025 tax year), and come April add the remaining £7K for the new 2025-2026 tax year depending on rate?

The only issue is finding a fixed rate for a year around 5%. It looks the the top rated cash ISA's are variable rate, so over a year could have dropped to 4% or less?

Trading 212 look good with its variable 5.05%, or would United Trust Bank with a fixed 4.54% be better?

Or somewhere else?

Thanks

I'd assume you are sorted however they both can add 20k to an isa each therefore wouldn't need to wait for the new tax year 25/26

Kim_13

If they would like the certainty of a fixed rate, but there is a small chance that they might need access to the money during the term then look for a Fixed Rate ISA. ISA rules require that providers have to allow access to the money prior to maturity whereas a normal fixed account doesn’t, so it can be worth sacrificing a little on rate and going the ISA route even when not a taxpayer to keep this option open. Providers can charge a penalty (x days interest or a flat fee) for early access so if there are several with the same terms (1 year, 18 months, 2 years and so on) and similar rates, go for the one with the lowest penalty for the fixed term desired. Some Fixed ISAs allow closure only, so look for one that allows them only to take a penalty on the amount they need access to while leaving the rest in the ISA. 

With £27,000 they might consider fixing £20,000 with their 24/25 ISA allowance (they can split it over different providers and term lengths if they wish) and placing the remaining £7,000 in a taxable Easy Access account or a couple of Regular Savers (quite a few allow access.) On £7,000 they shouldn’t get anywhere near the PSA limit so would still pay no tax even when the State Pension is eventually fiscal dragged into tax.