Full ISA Guide Discussion Area

RayWolfe

I think you need to read up about what Cash ISAs are. Sorry to be blunt but the only reason for existing is that they are tax free. Look at the top of this page under Cash ISAs.

Lokolo

neotheone wrote: »

I have a cash E-ISA with natwest and I have deposited £3800 in it, will I be taxed with all those savings in there? What should I do now to avoid that? Thank you.

How have you managed to do that?

JimmyTheWig

Cash in a cash ISA will not be taxed.
Cash in a stocks and shares ISA will, as per the above discussion, be taxed.

Yours is a cash ISA and so you need to do nothing to keep it tax-free.

TheLearner

I have an ISA which is 2.55% gross and a savings account which is 3.25% gross (variable).

Which one should I put my savings into - which will generate more interest over the next year?

JimmyTheWig

TheLearner wrote: »

I have an ISA which is 2.55% gross and a savings account which is 3.25% gross (variable).

Which one should I put my savings into - which will generate more interest over the next year?

If you are a higher rate tax payer then the ISA (2.55% net is better than 1.95% net).
If you are a standard rate tax payer then the savings account would generate slightly more interest over the next year (2.6% net is better than 2.55% net). [It would be a difference of £1.80 over the year on a balance of £3600.]

But note that a year's ISA allowance can't be used once that year has ended. If you regularly use your full ISA allowance but don't this year then you will always be paying tax on the interest on this money. If ISA rates pick up to more comparable with savings rates (they were pretty much equal only a year ago) then you could be losing out for years to come.

div22c

Am considering opening my first cash ISA ever. From what I understand I can put in £3600 this year, and £5100 every year from April. I cannot/should not withdraw from the account, because if I do I lose the tax benefit. Two questions (1) If I withdraw say 5 years from now, do I lose tax benefit for even the period that I was invested? (2) Sorry if it's a stupid question but here goes...So in 10 years time I will have invested roughly £50,000, excluding interest. How do I get access to that principal?

Lokolo

div22c wrote: »

Am considering opening my first cash ISA ever. From what I understand I can put in £3600 this year, and £5100 every year from April. I cannot/should not withdraw from the account, because if I do I lose the tax benefit. Two questions (1) If I withdraw say 5 years from now, do I lose tax benefit for even the period that I was invested? (2) Sorry if it's a stupid question but here goes...So in 10 years time I will have invested roughly £50,000, excluding interest. How do I get access to that principal?

It's not that you should never take it out but if you have other options you should use them. 10 years you would have a nice big pot earning tax free interest. Now if you take that out, and in a years time you want to put it back in, you wouldn't be able to put it all in ISAs., so now all the interest would be taxable. You would have shot yourself in the foot unfortunately.

JimmyTheWig

div22c wrote: »

Am considering opening my first cash ISA ever. From what I understand I can put in £3600 this year, and £5100 every year from April. I cannot/should not withdraw from the account, because if I do I lose the tax benefit. Two questions (1) If I withdraw say 5 years from now, do I lose tax benefit for even the period that I was invested? (2) Sorry if it's a stupid question but here goes...So in 10 years time I will have invested roughly £50,000, excluding interest. How do I get access to that principal?

All that you lose will be the tax benefit on that money in future years. If you've spent that money, then there's not a problem. (as long as you spent it wisely!)

Example 1. You save, say, £3000 a year for 4 years in order to buy a car. There is no problem in putting this money in a cash ISA and taking it out and spending it. You will have benefitted from tax-free interest for those years. You can then continue to put £3000 into the ISA in future years and earn tax-free interest on that.

Example 2. You put you maximum allowance into cash ISAs every year, as well as having £12k in a savings account paying the same gross interest rate as your ISA (i.e. ISA pays better net rate due to no tax). You want to buy a car for £12k. If you take the money out of your ISA you will still be paying tax on the money in your savings account. You'd be better to leave your ISA money alone and buy the car with the savings account money. Your ISA money is still accessible, however, in an emergency.

Example 3. You can afford to put away £100 a month for emergencies. After 2 months you need to spend £150 of this money on fixing your boiler. There is no problem taking the money out of your ISA as you are nowhere near your limit.

Example 4. You can afford to put away £1000 a month for emergencies / long term saving. You may be best to not fill up your ISA straight away as if you need to withdraw some for an emergency you wouldn't be able to replace it in your ISA this year.


To summarise...
If you are (close to) filling your ISA allowance in this and future years and you have other savings options to withdraw from then withdraw from these rather than your ISAs.

danielley

Hello!

I am a complete novice so please be gentle with me.....

Is it better to make overpayments of mortgage or save in either an ISA or savings account.

I can see that if I save myself, I can have access to that money if I were to need it, but am I right in thinking you will always save more money repaying a mortgage early?

Many Thanks

Yorkie1

The approach I'd take would be initially to ensure that I had 3-6 months' worth of savings for a rainy day / emergency situation. (Accessible rather than tied up for a period of time).

Those savings can be in an ISA or other savings account, but you'll get tax-free interest in the ISA.

After that, overpaying a repayment mortgage will always decrease your capital over time, thus leading to reduced term of the mortgage and lower LTV if needing to obtain a new deal at any time. You would need to check that overpayments were allowed without penalty.

The disadvantage with overpaying is that it isn't necessarily easy to access the overpaid funds - it's not like a savings account.

One thing to be careful about when deciding between mortgage and savings, though, are the relative interest rates. If your mortgage rate is really low, and you can get a decent savings rate, it may be worth going for the savings.