Cash ISAs? Do me a favour, only for high rate tax payers

meester

debbie42 wrote: »

I don't agree with the OP: either in the tone or the content. However, Aegis (and others) have made some perfectly valid points that may help others. Your post has done neither, and just caused me to get annoyed by scrolling past it. There is a certain irony there.

Ahem.

I assumed good faith from the thread starter, and rebutted his OP in quite some detail explaining the true value of cash ISAs:

http://forums.moneysavingexpert.com/showpost.html?p=8866737&postcount=8

I also responded to YOUR post earlier in this thread with a suggestions

http://forums.moneysavingexpert.com/showpost.html?p=8867813&postcount=14

Quite a few people have responded, explaining why the OP is wrong.

He has completely ignored what has been written, and is plainly intent on wasting everybody's time by repeating the same stuff over and over again. This is called trolling and it really is not productive to prolong it.

debbie42

meester wrote: »

He has completely ignored what has been written, and is plainly intent on wasting everybody's time by repeating the same stuff over and over again. This is called trolling and it really is not productive to prolong it.

I agree it isn't productive if the thread was falling into disarray: it isn't though. Some people are still making some valid comments. It got me thinking about my investment and saving strategy.

I wasn't criticising any other of your contributions, just that particular post. Why oh why did you feel the need to waste everybody else's time (and yours!) by posting that line so many times???

meester

debbie42 wrote: »

I agree it isn't productive if the thread was falling into disarray: it isn't though. Some people are still making some valid comments. It got me thinking about my investment and saving strategy.

I wasn't criticising any other of your contributions, just that particular post. Why oh why did you feel the need to waste everybody else's time (and yours!) by posting that line so many times???

Because the OP comes back every day or so and roughly reposts his original comments without bothering to respond to any of the details. Aegis made a useful and detailed response to the OP's second troll, which caused the OP to come back, ignore the thoughtfully constructed response, and posting another monologue suggesting everyone is on drugs. It's just a wind up, timewasting.

These people thrive on attention and it really is not sensible to give them it. Everything has been said on both sides, but the OP ignores it and is intent on prolonging this for his own destructive ends.

Han_naH

Hey, I'm an OP (sounds important!).

Thanks Diplo for the erudite contribution. I knew some successful investors were here somehwere!

I am reading the posts and I am answering them directly (again).

One guy just gave the example of 6% versus 4.8% after tax (talking about not reading previous - my - post) - I pointed out the difference is currently 6.24 best ISA versus 5.24 best savings acc. after tax. That is 1%. That poster also incorrectly assumes rates are 5.5% for 10 years - but they aren't. And don't give me an average either because rates can stay low for a long time.

Furthermore, you lost 3K allowance from your 7K S&S which means £30,000 that could have been in the much higher performing FTSE etc. Some years, folks, the FTSE All Share has returned 25% tax free. Yes, you know where you can stick that cash ISA? Good luck with that 6.24% this year and 3.24% next year.

Losing that 3K from that 7K allowance, is a big mistake over a few quid.

What's that? The market is down? Then you are buying at lower prices in your regular monthly investment - good news indeed.

Honestly there should be greater share ownership in this country, and education about the long term returns and the effect inflation has on those savings accounts.

Perhaps MSE can contribute by putting less emphasis on "Granny's little savings account" (cash ISAs).

No wonder the rich get richer and the poor get poorer.

And read Rich Dad Poor Dad, you won't touch savings accounts again...

noh

leejp wrote: »

...................

Furthermore, you lost 3K allowance from your 7K S&S which means £30,000 that could have been in the much higher performing FTSE etc.............

Losing that 3K from that 7K allowance, is a big mistake over a few quid....

Another incorrect statement. As well as the allowance increasing to £7200 total, the money paid into a cash ISA is not lost from the S+S ISA. From the 6th of April 2008 you will be able to transfer money held in a cash ISA to a S+S ISA.
http://www.hm-treasury.gov.uk/media/C/0/explaining_new_isa_regime.pdf

Nigel

Aegis

leejp wrote: »

Hey, I'm an OP (sounds important!).

Thanks Diplo for the erudite contribution. I knew some successful investors were here somehwere!

Just because people don't agree with you does NOT make them unsuccessful. In fact, you can pretty much guarantee that if they follow some of your comments below, they will run into trouble eventually!

I am reading the posts and I am answering them directly (again).

One guy just gave the example of 6% versus 4.8% after tax (talking about not reading previous - my - post) - I pointed out the difference is currently 6.24 best ISA versus 5.24 best savings acc. after tax. That is 1%. That poster also incorrectly assumes rates are 5.5% for 10 years - but they aren't. And don't give me an average either because rates can stay low for a long time.

My calculation previously assumed something like 6.5% savings account vs 6.25%. In the long run this will probably end up being a reasonably average, as interest rates are still historically lower than usual.

Your comment about not giving you an average is ridiculous. If you're not using data on interest rates, then how on earth are you coming to your conclusions? As I mentioned above, historically the interest rates have been much higher than now. There is speculation that interest rates may be cut to 5% by the end of the year, which should still allow ISAs of 5.5% without any difficulty. Long term forecasts don't currently indicate that rates will go much lower than that in the near future because lowering from there would have a dramatic effect on the inflation rate, which the MPC is mandated to counteract with rising interest.

Furthermore, you lost 3K allowance from your 7K S&S which means £30,000 that could have been in the much higher performing FTSE etc. Some years, folks, the FTSE All Share has returned 25% tax free. Yes, you know where you can stick that cash ISA? Good luck with that 6.24% this year and 3.24% next year.

And the reason why a basic taxpayer would need an ISA to get good growth is...? What exactly? You still have not explained the benefits of a stocks and shares ISA to a basic rate taxpayer who is unlikely to become a higher rate taxpayer (have to assume this, otherwise cash ISAs become much better than your argument says they are). All in all, there is no benefit to a basic rate taxpayer in having such an ISA, while there is a clear long-term benefit to having a cash ISA.

Invest £7k in one year, and you need somewhere in the region of 70% growth before you even need to worry about capital gains tax. Invest £4k in the mini ISA and £3k through normal means (my suggestion), and you need 470% growth before CGT becomes an issue! If you're receiving dividends, the income is taxed at 10% inside OR outside the ISA wrapper, and at the basic rate you won't need to pay anything more than that.

Losing that 3K from that 7K allowance, is a big mistake over a few quid.

See above, it's a real non-issue for most basic rate taxpayers.

What's that? The market is down? Then you are buying at lower prices in your regular monthly investment - good news indeed.

You can invest outside an ISA. Having a cash ISA doesn't stop you from making use of pound cost averaging or investing in general.

Honestly there should be greater share ownership in this country, and education about the long term returns and the effect inflation has on those savings accounts.

There should also be more lessons on why a cash stockpile is necessary before investing, and why cash ISAs are a good place to store those rainy-day funds.

Perhaps MSE can contribute by putting less emphasis on "Granny's little savings account" (cash ISAs).

No

No wonder the rich get richer and the poor get poorer.

The rich have a hell of a lot less to lose. They can afford to take more risks. Inside or outside an ISA, the percentage of your capital that you can afford to invest is going to dictate how much you stand to make a lot more than whether you have a cash ISA or not!

And read Rich Dad Poor Dad, you won't touch savings accounts again...

I'm tempted to pick it up just to see if the advice is really that bad!

Tell me, how much money could you get your hands on quickly if you had an emergency? If it's less than about 6 months, then you run a very real risk of needing to quickly realise your assets in the future, and if that happens to coincide with a market downturn you are going to be forced into making a loss.

Now, as dipsomaniac mentioned (I believe), NS&I index-linked savings certificates aren't a bad idea for cash savings, and they certainly have their advantages. However, cash ISAs typically offer higher rates and are more useful for short term savings because you can touch the cash without losing the interest in the first year. You also have the advantage that banks tend to be very competitive when it comes to ISAs, so you can shop around for somewhat better rates, while with index-linked saving certificates you have no such option. There is also the risk that NS&I will at some point decide to use the CPI rather than the RPI as the basis for deciding interest rates, which would immediately lower the base figure by 2%, and judging from the rest of their products (mostly awful!) I doubt that if they ever do this they'll increase the bonus above that by much! I've not seen anything indicating that this is in the pipeline, but given that the government has switched a lot of their measures to CPI, it wouldn't surprise me in the slightest.

cheerfulcat

meester wrote: »

Because the OP comes back every day or so and roughly reposts his original comments without bothering to respond to any of the details. Aegis made a useful and detailed response to the OP's second troll, which caused the OP to come back, ignore the thoughtfully constructed response, and posting another monologue suggesting everyone is on drugs. It's just a wind up, timewasting.

These people thrive on attention and it really is not sensible to give them it. Everything has been said on both sides, but the OP ignores it and is intent on prolonging this for his own destructive ends.

Meester, while I agree that leejp's posts in this thread are coming across as a slightly aggressive in tone, I do think that s/he has made an important point, well worth discussing. The potential return from long-term investment in equities is far greater than that of cash. Assuming that one is stashing away money for the long term ( as a retirement fund, for example ), it stands to reason that those who can afford to do so would be better off using their S&S ISA allowance in full.

You made reference in an earlier post to the annual CGT exemption - this appears at first sight to be generous but a long term investor ( i.e. one not using the exemption every year ) could well find him/herself with a pretty hefty CGT liability if forced to sell an investment ( by a takeover, say ) after 20 years...and if dividends were automatically re-invested, some very tiresome calculations as well. Not to mention all the record-keeping.

I accept that many people are wary of equities, and would prefer to keep their money in cash, in which case cash ISAs are the way to go ( you'll need all the help you can get to beat inflation! ). But anyone prepared to invest would do well to at least consider using the full S&S ISA allowance.

Aegis

cheerfulcat wrote: »

Meester, while I agree that leejp's posts in this thread are coming across as a slightly aggressive in tone, I do think that s/he has made an important point, well worth discussing. The potential return from long-term investment in equities is far greater than that of cash. Assuming that one is stashing away money for the long term ( as a retirement fund, for example ), it stands to reason that those who can afford to do so would be better off using their S&S ISA allowance in full.

Now, if you wanted to talk about appropriate amounts of cash savings, then we could get a decent conversation going here. However, the initial post appeared to be just a claim that cash ISAs are completely useless, which is most definitely not the case. Build up £15-30k in cash ISAs, and I'd say that there's no point in building up any more, but keeping half a year's salary is useful, and cash ISAs are very useful for storing that money.

You made reference in an earlier post to the annual CGT exemption - this appears at first sight to be generous but a long term investor ( i.e. one not using the exemption every year ) could well find him/herself with a pretty hefty CGT liability if forced to sell an investment ( by a takeover, say ) after 20 years...and if dividends were automatically re-invested, some very tiresome calculations as well. Not to mention all the record-keeping.

As I mentioned above, if you were looking at investing £7k total, then you would need to be looking at returns of about 470% before you start losing out by going into a cash ISA with £3k. Admittedly, that would only take about 5 years if you got 25% increases each year, but you'd also be able to sell, say, £10000 of your outside-ISA portfolio plus as much as you like from inside the ISA, so it's still not a totally black and white situation

I accept that many people are wary of equities, and would prefer to keep their money in cash, in which case cash ISAs are the way to go ( you'll need all the help you can get to beat inflation! ). But anyone prepared to invest would do well to at least consider using the full S&S ISA allowance.

True, but you'd also expect any prepared investor to want a decent cash pot before going in to the markets. As I've argued at several points in this thread, the cash ISA is ideal for the medium-long term rainy-day savings.

meester

cheerfulcat wrote: »

Meester, while I agree that leejp's posts in this thread are coming across as a slightly aggressive in tone, I do think that s/he has made an important point, well worth discussing. The potential return from long-term investment in equities is far greater than that of cash. Assuming that one is stashing away money for the long term ( as a retirement fund, for example ), it stands to reason that those who can afford to do so would be better off using their S&S ISA allowance in full.

You made reference in an earlier post to the annual CGT exemption - this appears at first sight to be generous but a long term investor ( i.e. one not using the exemption every year ) could well find him/herself with a pretty hefty CGT liability if forced to sell an investment ( by a takeover, say ) after 20 years...and if dividends were automatically re-invested, some very tiresome calculations as well. Not to mention all the record-keeping.

But again, there's nothing to stop you switching the cash ISAs into share ISAs in the future. Until that day comes you will save more with the cash ISAs.

And I think your point is misleading. While it's true that equities return higher than cash, it is sensible to have cash in your portfolio as well as equities. Cash ISAs return 6% with zero volatility. Not bad.

ManAtHome

Quite Meester - the original post was a very "one size fits all" - and it doesn't. A specific number of people would be better off investing rather than saving, even then you have to balance the loss of many years cash ISAing at some time. I suspect a larger number of people would be better off splitting their cash between investments (and even then between S&S ISAs and pensions) and savings.