Introductory rate ISA vs long term rate

Fuzion

Hi, I need to put aside a few grand, and think an ISA is probably the best way. I

am looking for interest rates of >4%. Would there be any reason not to go for some of the 1-year introductory deals of c.4.5%, and go for a product with a slightly lower variable long term rate of 4.3% (e.g. Hargreaves Lansdown)?

Are there any other products (other than ISAs) I should be considering? I won't be dipping in and out of the money but would like to be able to access it.

Albermarle

You only need to save in an ISA savings account, if your are likely to have to pay tax on the interest, either now or in the foreseeable future.

If not non ISA savings accounts tend to pay a bit better interest rate, and are not affected by complicated ISA rules.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81916193#Comment_81916193

Although to be fair the tax rules for non ISA accounts can get complicated!

Fuzion

https://forums.moneysavingexpert.com/discussion/comment/81916193#Comment_81916193

That's a good point. Am I correct in thinking that as I'm just into the 40% tax band I am allowed up to £500 in interest per year tax free? (Aas I'm a sole trader I'll presumably have to declare on my self assessment).

[Deleted User]

trading212 is offering 4.5% for their cash ISA. Not used them myself.

jimjames

That's a good point. Am I correct in thinking that as I'm just into the 40% tax band I am allowed up to £500 in interest per year tax free? (Aas I'm a sole trader I'll presumably have to declare on my self assessment).

Yes. Until recently I also couldn't see the point in cash ISAs and kept savings in the best paying accounts but as rates have risen I've been hit by tax so am now using them to a certain extent alongside regular saver accounts to keep the taxable interest closer to the limits. So personally if your ISA allowance isn't used for anything else then I would use it for savings to avoid needing to worry about tax especially if you are 1) 40% taxpayer and 2) might be increasing the amount of savings over the next few years.

Fuzion

I've opened the Trading 212 ISA, and put 4K in there. It is as good as any non-ISA savings account anyway. The only issue is that I'm now close to my 20K limit in my existing Zopa ISA, which I have been shuffling money in and out of all year. (It's non flexible).

Luckily there isn't long to wait for the new financial year so I will transfer the Zopa pot (which stands at about 6K) to the new one in a few weeks.

Angelica123

https://forums.moneysavingexpert.com/discussion/comment/81916834#Comment_81916834

If you already have the Trading 212 ISA open, is there a reason you need to wait until the new tax year to transfer the Zopa to the trading 212? If anything it sounds like, given the frequent withdrawals, it would benefit you to have all the money within a flexible ISA.

On another note, you've have said you have used almost 20k allowance within Zopa ISA. The total allowance between all your ISAs is 20k - did you have enough allowance left to be able to add 4k to your trading 212 ISA?

clairec666

https://forums.moneysavingexpert.com/discussion/comment/81916847#Comment_81916847

I think Trading 212 offers a lower interest rate on transfers in. So maybe OP is thinking of withdrawing from Zopa and depositing into Trading 212 in the new tax year?

Rollinghome

The only comment I'd make is that it should be born in mind that ISA are a take-it or lose-it concession. That's ok if your annual savings are currently far enough below the allowance so that they could all go into an ISA at a later date, but circumstances do change.

When PEPs, before ISAs, were introduced brokers generally charged an extra 0.5%-1.0% for ISAs (I found a broker, Popes, who charged just £5 per divi collected), and as Mrs R wasn't paying HR tax the cost out-weighed the saving and it seemed pointless. But later that turned out to be not such a smart move after all, and the bigger tax-free home that would have given us would be very welcome in keeping down our tax bill now. Not that we feel hard done by, and we pay only a fraction of what we would be paying without ISAs and SIPPs.

Which is why ISA rules don't favour families with the costs of bringing up kids including uni fees in the early years before their own salaries rise, and don't have wealthy parents to help.

Fuzion

Whew I actually HAD initiated a transfer from my current provider last night, I hadn't spotted that the introductory offer wouldn't apply to transfers.

I've been through my ISA contributions and worked out I've paid in about 16K (although I've withdrawn a lot too, sadly). So the 4K added to my Trading212 account maxes me out.

Oddly enough my Zopa ISA says I have over 22K allowance remaining; not sure what is going on there?