Alternative to CASH ISA

poseidon1

masonic said:

slinger2 said:

poseidon1 said:

slinger2 said:

poseidon1 said:

slinger2 said:

I've been looking at the Paragon ISA mentioned. 28 days to pay in. Not sure the flexible aspect is much use, there's a hefty penalty for withdrawals. 

Monthly interest payments do not count as withdrawals ( I checked). It is the interest withdrawn that I would be putting back.

As matter of principle I never withdraw capital from any isa ( tax free income far too valuable for 40% tax payer).

I'm confused. Are you saying that if the interest is paid away the it doesn't count as a withdrawal, but if it's added to the account and then taken out, it does count as a withdrawal?

Anyway my principle is not to take anything out of an isa that I can't replace later in the tax year. Whether it's capital or interest is completely irrelevant. 

Precisely, there is no penalty where you set up the isa on the  basis of automatic mandating of interest to your personal bank account ( all my isas set up this way after I retired ) - I live off my  isa income,  whether it be  interest or stocks & shares dividends.

However since I am in the fortunate position of being able to regularly utilise the full annual £20k  allowance,  being able to replace all the isa income spent during the year , gives me that bit extra at the start of the new isa year, over and above the allowance.  I consider it a form of virtuous recycling that works for me but appreciate it may not make sense to others.

But if the interest that is paid away doesn't count as a withdrawal then you can't "replace" it later in the tax year because it was never withdrawn. With a flexible ISA you can only replace money that has been previously withdrawn, earlier in same tax year. 

I think this conflates two different sets of rules. A bank, within its T&Cs can treat interest paid away as not being a withdrawal that triggers the penalty they impose. Whereas HMRC can treat it as a withdrawal for the purposes of the flexible ISA rules. A number of ISA managers add paid away interest to the flexible allowance, despite no statement transaction formally crediting it to the account and then withdrawing it. I don't think there is anything to suggest this is wrong.

Exactly Masonic.

That is how Lloyds Bank operate their flexible cash isa, which confused another OP on this forum as to why his ISA allowance with them was increasing during the year  despite the interest payments Lloyds were paying away. Its actually what gave me the idea to go down the flexible route. The counterintuitive nature of this arrangement was quite appealing.

Just one of a number of tips and hints I have gratefully picked up on this and the pensions forum!

slinger2

masonic said:

slinger2 said:

poseidon1 said:

slinger2 said:

poseidon1 said:

slinger2 said:

I've been looking at the Paragon ISA mentioned. 28 days to pay in. Not sure the flexible aspect is much use, there's a hefty penalty for withdrawals. 

Monthly interest payments do not count as withdrawals ( I checked). It is the interest withdrawn that I would be putting back.

As matter of principle I never withdraw capital from any isa ( tax free income far too valuable for 40% tax payer).

I'm confused. Are you saying that if the interest is paid away the it doesn't count as a withdrawal, but if it's added to the account and then taken out, it does count as a withdrawal?

Anyway my principle is not to take anything out of an isa that I can't replace later in the tax year. Whether it's capital or interest is completely irrelevant. 

Precisely, there is no penalty where you set up the isa on the  basis of automatic mandating of interest to your personal bank account ( all my isas set up this way after I retired ) - I live off my  isa income,  whether it be  interest or stocks & shares dividends.

However since I am in the fortunate position of being able to regularly utilise the full annual £20k  allowance,  being able to replace all the isa income spent during the year , gives me that bit extra at the start of the new isa year, over and above the allowance.  I consider it a form of virtuous recycling that works for me but appreciate it may not make sense to others.

But if the interest that is paid away doesn't count as a withdrawal then you can't "replace" it later in the tax year because it was never withdrawn. With a flexible ISA you can only replace money that has been previously withdrawn, earlier in same tax year. 

I think this conflates two different sets of rules. A bank, within its T&Cs can treat interest paid away as not being a withdrawal that triggers the penalty they impose. Whereas HMRC can treat it as a withdrawal for the purposes of the flexible ISA rules. A number of ISA managers add paid away interest to the flexible allowance, despite no statement transaction formally crediting it to the account and then withdrawing it. I don't think there is anything to suggest this is wrong.

I take your point. A bit of a trick to take some money out of a fixed-rate flexible cash ISA. Of course you're still losing out compared with leaving the interest in the ISA (where the interest would be compounding, tax free). That's why I prefer to leave the interest in the ISA and use non-ISA savings to live on if I need it (which is being taxed in my case at 20%).

The other point is that if you have a variable-rate flexible cash ISA (with no penalties for withdrawals) you can take out whatever you want, whenever you want, and pay it back in later in the tax year.

poseidon1

Just for clarification on the Paragon flexible fixed isa ( for those who might be interested).  Since the funding window with them is just 28 days after opening, you cannot repay interest paid out back into that isa after the window closure.

What they do is to allow you to open another isa towards the end of the tax year solely to receive  the amount you have flexibly accrued during the course of the year via the interest withdrawals.

 As in the case of the Lloyds Bank Flexible isa, the online account shows your allowance increasing each time the interest is paid away, but you will need a new Paragon isa to house the repayment. With a minimum funding level of just £500 for their suite of ISAs, a new one ( when needed) should not be hardship.

Given the investment required to the back end systems to achieve this flexibility, I can now appreciate why only a relatively small minority of providers offer flexible ISAs

slinger2

With any flexible cash ISA you can withdraw money and then replace it into the same ISA without it affecting your annual allowance. However with a fixed-rate flexible ISA there is often a penalty for withdrawal which doesn't make withdrawing a tempting option. And that is the case with Paragon ISAs I've looked at.

The other aspect here is that Paragon operate a "portfolio" system for their cash ISAs. That means that the ISA rules only apply to the sum total of all your cash ISAs with them. This means that they can sort of break the rules when moving money between their own cash ISAs, since it's being treated as one big ISA. So in the post above the interest is withdrawn from one ISA and then replaced in another one. Normally this is not allowed but because of the "portfolio" system they can do, it's all one big ISA as far as the tax-man is concerned. What I don't understand is why you can't simply replace the interest in the original ISA, why do you need to open a new one?

and it's not a free option. Some of the interest taken out is out of the ISA for nearly a year. If it'd been left in it would have grown by about 4% (assuming we're talking about monthly interest)

20122013

I was looking at the FSCS protection for PLUM  on

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

Click under 'further details',  right at the bottom it says:

'How safe is your money?

This provider is not a bank and does not offer its own savings accounts. It offers accounts that are provided by other regulated banks and your savings are protected by the Financial Services Compensation Scheme, up to the £85,000 limit, in the name of the bank providing the account. Any money you save via this account will be added to any money you already hold with the account provider for the purposes of FSCS protection and any money over the £85,000 limit will not be protected'.

I also looked at Paragon and I had used the number from their website 

'Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551' 

but cannot find them listed on

https://www.fscs.org.uk/Search/Index/?q=604551

so I went to check it on another website to see whether their protection works the same as PLUM.. and it says

FOR PARAGON

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

'How safe is your money?

In the UK, the first £85,000 of savings per person is protected by the Financial Services Compensation Scheme. Some banking brands share the same banking licence which means your deposit protection is across all brands sharing the licence. If you have also borrowed from the failed bank/building society, the compensation will not be reduced to repay your debt, separate arrangements will be made for this. The deposits of most businesses are covered up to the £85,000 limit, but businesses should check with their bank before they apply as there are exclusions.

This bank/building society shares its compensation limit with Spring.''

My question is regarding the FSCS protection, does it mean up to £85K protection is share with Paragon and other banks who has the same owner?

Where as Plum is not a bank but the £85K protection is still provided by the other bank ?

If I have not banked with any other bank, with both  Plum or Paragon have the same FSCS protection ?

 

Qyburn

slinger2 said:

What I don't understand is why you can't simply replace the interest in the original ISA, why do you need to open a new one?

It needs to go in a new account (sub-account) because the 15 Month Fix doesn't allow deposits after 28 days.

and it's not a free option. Some of the interest taken out is out of the ISA for nearly a year. If it'd been left in it would have grown by about 4% (assuming we're talking about monthly interest)

Why can't the interest be deposited in the new account as it's paid, why wait till the end of the year?

Or in fact if you want to do this, why have the interest paid away in the first place?

slinger2

Qyburn said:

It needs to go in a new account (sub-account) because the 15 Month Fix doesn't allow deposits after 28 days.

Surely that's not true. It's a flexible ISA and money withdrawn can be replaced in the same ISA in the same tax year. Anyway it's not a "deposit" it's a "replacement".

Qyburn said:

Why can't the interest be deposited in the new account as it's paid, why wait till the end of the year?

Or in fact if you want to do this, why have the interest paid away in the first place?

That's my whole point really. I'm not really sure why this particular scheme is very beneficial. The only benefit seems to be that by having the interest paid away it avoids the penalty charge which you'd pay if you withdrew that money directly from this fixed-rate flexible ISA (about 1.5% of what's withdrawn), a penalty you'd presumably still have to pay if you replaced that money later in the tax year.

I'd have thought that investing some of your money in a variable rate flexible product (where there would be no penalties whatever you withdrew) and using that as spending money would be simpler and with interest rates as they are you're likely to get about as much interest from such an account as the fixed rate product.

masonic

slinger2 said:

Qyburn said:

It needs to go in a new account (sub-account) because the 15 Month Fix doesn't allow deposits after 28 days.

Surely that's not true. It's a flexible ISA and money withdrawn can be replaced in the same ISA in the same tax year. Anyway it's not a "deposit" it's a "replacement".

Qyburn said:

Why can't the interest be deposited in the new account as it's paid, why wait till the end of the year?

Or in fact if you want to do this, why have the interest paid away in the first place?

That's my whole point really. I'm not really sure why this particular scheme is very beneficial. The only benefit seems to be that by having the interest paid away it avoids the penalty charge which you'd pay if you withdrew that money directly from this fixed-rate flexible ISA (about 1.5% of what's withdrawn), a penalty you'd presumably still have to pay if you replaced that money later in the tax year.

I'd have thought that investing some of your money in a variable rate flexible product (where there would be no penalties whatever you withdrew) and using that as spending money would be simpler and with interest rates as they are you're likely to get about as much interest from such an account as the fixed rate product.

If you have £20k to save and need to spend £75 per month of it over the first half of the tax year, but will then be able to save £75 per month over the next half of the tax year, then you could either use one of these accounts or save only £19,550, keeping the remainder in some lower paying easy access account. In the latter case you'd earn less interest overall. If you can earn as much interest in an easy access account, then there would be no point fixing at all.

It's probably a little simpler to understand if you remove the ISA wrapper and flexibility from the equation. If you put a lump sum into a fixed term savings account with interest paid away because you need that interest to live on, then you'd be better off putting a larger balance in the fixed term account at the outset than reserving the money you would need to spend and putting that in an easy access account assuming you can fix at a higher rate than the easy access account pays. In this case you'd have to put additional savings into a different savings account if you had them in most cases, but some fixed term accounts allow deposits over the lifetime of the account, which is a benefit assuming they still pay a competitive rate.

As a general principle, you should always seek to prioritise putting as much money as you can into the highest rate accounts available to you, and as early as possible. If pay-away arrangements can be exploited so as to save more in the first instance, then this is a benefit, especially if the money can then be later returned to the higher interest account such that it is only missing for the shortest possible time.

slinger2

20122013 said:

Does anyone know whether all  NON Fixed Cash ISA are in fact a Flexible ISA ? 
Are all Easy access ISA are flexible ISA?

Is there a way to tell it is a Flexible ISA if it does not say on the product name.

I have checked with the provider and would like to check with the forum.

Many variable rate Cash ISAs are not flexible. Many are flexible, so you just need to find out if that's important to you. The Tembo Cash ISA (4.8% variable) which has been getting some publicity recently is not flexible. So although it advertises unlimited withdrawals you can't "replace" that money, adding it back would use up part of your £20k allowance.

20122013

slinger2 said:

Many variable rate Cash ISAs are not flexible. Many are flexible, so you just need to find out if that's important to you. The Tembo Cash ISA (4.8% variable) which has been getting some publicity recently is not flexible. So although it advertises unlimited withdrawals you can't "replace" that money, adding it back would use up part of your £20k allowance.

Appreciate the clear explanation

I had posted a reply to this thread earlier at 28 March at 10:41PM, as I cannot seem to be able to find PLUM, or Paragon or Tembo (928010) on the FSCS website I was able to finds Vanquis,

https://www.fscs.org.uk/Search/Index/?q=928010

Message : 'No results found, please try again with some other search words.'