Financial Times ISA article

Eyeful

LHW99 said:

Once upon a time, some big banks (I think HSBC was one) offered products that guaranteed a medium rate of interest on a capital sum (usually a few thousand), plus a proportion of any rise in a specific index over the (probably 5) years the account ran for.

You didn't lose your capital, and would make a known minimum return, with the possibility of beating general interest rates over the time.

I guess the financial crisis and proliferation of dodgy "bond" products killed them off, but they did have a place in the days of PEP's and TESSA's (remember those?)

1. If I remember, the catch with many of those offers that building societies put in front me as "investing in the stock market with no risk"  was this.
 On the day you signed up, they made a note of the FTSE 100 closing value.
 On that same day  in 5 years time:
(a) if the FTSE 100 was higher, you got back something like 40% of any increase in capital value, plus your original money back.
(b) if the FTSE 100 was the same value (or lower) you got only your original money back.

2. Those that sold this to you, worked on commission.

3. Who kept the increase in capital value & the share dividends you never got?
    The insurance companies who came up with this idea!
    You were not told about this catch but had to search the leaflets you where given to find it.

Aretnap

masonic said:

Aretnap said:

masonic said:

Aretnap said:

Looks like a suggestion that the government should do something radical, outrageous and unprecedented like... go back to the system as it was until 2014.

Until then a maximum of half of your ISA allowance could be used for a cash ISA; the remainder was a use it or lose it offer to invest in stocks and shares. ISTR that was intended precisely to encourage people to invest their money in productive assets rather than just cash.

And with today's large ISA allowances it's also fair to say that anybody with £20,000 per year to set aside (a) doesn't need extra encouragement to save (what else are they going to do with their money?) and (b) is at very little risk of becoming dependant on the state. How to encourage people on low incomes to save more is a reasonable question, but "make sure the cash ISA limit is £20,000 not £10,000" isn't obviously part of the answer.

Alexland said:

If cash ISA contributions were capped below demand then providers would just start marketing money market funds in S&S ISAs which is how I get best buy cash ISA rates without the faff of keep moving accounts around.

There were a couple of other things that were different back in the early days. First, very low risk investments were not ISA eligible. I'm not sure how easily that genie could be put back in the bottle. Second, it was not possible to transfer from S&S ISA to cash ISA, only the other way. Here it would amount to closing the stable door after the horse has bolted. It would do nothing for money currently stashed in cash ISAs.

Obviously it wouldn't do anything about the money already held in cash ISAs, though if the government wanted to encourage more investment and less cash saving it does feel like an easy way to at least start a pivot in that direction. 

You make a good point about very low risk investments. I imagine again it would be easier to restrict new purchases of them within S&S ISAs going forwards than to try to unwind existing investments.

I'm also not sure what proportion of the people who shove £20K into a cash ISA every year would have the nous to use money market funds or one year gilts to essentially replicate a cash ISA within a S&S ISA, but I suspect it's fairly low - look at all the comments on the other thread along the lines of "there's no way I'd ever risk my money on stocks and shares". So it might not actually be a problem that needed solving.

There are already products, like this one https://www.trading212.com/interest-on-cash poised to pick up the slack. Would just take an MSE article and a bit of a push in the weekly email and I suspect many would reconsider when the alternative is paying tax on the interest outside of an ISA.

But in all seriousness, this is a political non-starter for a number of reasons, not least all of the pain would be up-front, and any benefits would not be felt until several election terms down the line. If there are any benefits when most who turn to investing would be well advised to take a global approach.

I know, I have my own ISA cash in there. However I seen to remember that you could get interest on cash in a S&S ISA under the old system as well. It was just taxable, so there was no incentive to use a S&S ISA for long term cash deposits. 

Agree that it's not going to happen. It would inevitably be painted as a vicious assault on hard working savers and pensioners, rather than a tweak to a generous tax break which mainly benefits the very wealthy. It could still be good policy but bad politics, of course.

DRS1

Eyeful said:

LHW99 said:

Once upon a time, some big banks (I think HSBC was one) offered products that guaranteed a medium rate of interest on a capital sum (usually a few thousand), plus a proportion of any rise in a specific index over the (probably 5) years the account ran for.

You didn't lose your capital, and would make a known minimum return, with the possibility of beating general interest rates over the time.

I guess the financial crisis and proliferation of dodgy "bond" products killed them off, but they did have a place in the days of PEP's and TESSA's (remember those?)

1. If I remember, the catch with many of those offers that building societies put in front me as "investing in the stock market with no risk"  was this.
 On the day you signed up, they made a note of the FTSE 100 closing value.
 On that same day  in 5 years time:
(a) if the FTSE 100 was higher, you got back something like 40% of any increase in capital value, plus your original money back.
(b) if the FTSE 100 was the same value (or lower) you got only your original money back.

2. Those that sold this to you, worked on commission.

3. Who kept the increase in capital value & the share dividends you never got?
    The insurance companies who came up with this idea!
    You were not told about this catch but had to search the leaflets you where given to find it.

I think you could also get some that paid out on a decrease in the stock market levels.

I suspect no-one ever saw the dividends because the products were probably based on options or contracts for differences or the like.

legasov

WillPS said:

Moneyfacts lists 6 easy access cash ISAs above the base rate presently.

I believe THIS is exactly why the "city firms" are pushing Reaves to stop it. Look at those 6 easy access ISAs - no big "city firms" there. The top dogs can't play this game so they want to shut it down!

jimjames

legasov said:

WillPS said:

Moneyfacts lists 6 easy access cash ISAs above the base rate presently.

I believe THIS is exactly why the "city firms" are pushing Reaves to stop it. Look at those 6 easy access ISAs - no big "city firms" there. The top dogs can't play this game so they want to shut it down!

The firms mentioned in the article are not ones that are offering cash ISAs so that makes no sense

poseidon1

EarthBoy said:

zagfles said:

Alexland said:

If cash ISA contributions were capped below demand then providers would just start marketing money market funds in S&S ISAs.

Or gilts. Anyone with a clue will be able to pretty much replicate cash ISAs in S&S ISAs using MM funds or gilts. 

I would guess that most people don't have a clue about stocks and shares, funds and gilts, and all that stuff.  That's exactly why so many millions avoid them.  Cash ISAs, and saving accounts in general, might not realise as good returns, but people understand them, and know what they're getting.  

Most people understand cash isas. There are unfortunate exceptions - see somewhat tortuous thread below.


https://forums.moneysavingexpert.com/discussion/6584768/help-hmrc-randomly-dipped-in-and-took-1-4-of-my-wages#latest