Are cash ISA's worth the hassle ?

Urban_Tangleweed

Hi All,

I'm getting to thinking that cash ISA's are really a load of hassle, and not worth bothering with.

Reason being, you open a top paying account of say 6%, then within a year, the next "Issue" comes around paying 6%, but your once top paying account now pays 4.5%.

At this point, you need to complete a transfer, which may take 1 to 2 months to happen, involve lots of paperwork, not to mention the frustration and anxiety caused during the transfer process.

Now then, it seems pretty much possible that at all times, a top instant access saving account will be paying 6-6.25% interest, after tax for a standard tax payer this will be 4.8-5%, but when the rate drops, it's easier and simpler to withdraw all the cash, then open the latest top paying instant access account and dump the lot in there.

I know the rate after tax isn't so good, but if your ISA provider also charges a transfer fee of say £25, this is worth nearly 1% of £3000 over a year anyway, thus reducing the effective ISA interest rate anyway.

Any thoughts ?

dunstonh

I'm getting to thinking that cash ISA's are really a load of hassle, and not worth bothering with.

Reason being, you open a top paying account of say 6%, then within a year, the next "Issue" comes around paying 6%, but your once top paying account now pays 4.5%.

That is no different to any savings account out there.

Just this week I recommended a cash ISA to somoene and told them to use a provider that doesnt have an initial bonus and is consistent with their savings rate rather than one that looks to buy new business periodically. That was because they said they wouldnt keep looking around for the best rate.

If you want to get the best rate all the time then expect to keep changing. If you cannot be bothered then look for the next tier that are consistent with their rates.

debbie42

You don't have to do it: nobody's forcing you, it's your money! I've got a few years cash now, so it does make sense (to me) to move it around for a better rate. There are, however, some institutions that I have learned through experience (and threads on here!) to avoid.

baby_boomer

Halifax's 4 Year fixed rate @ 6.2% would solve your problem if you didn't need the cash over that time scale.

Milarky

I agree - but ISAs aren't so much a hassle as a dilemma: Better rates are generally available elsewhere - but since they are taxed, the net rate from an ISA will still be greater. This is especially the case for all Higher Rate taxpayers - for whom even 4% on an ISA is worthwhile.

As debbie says, though, no one forces anyone to carry an ISA around with them - it becomes a rational decision for each person whether to build their savings around them or not (and, if so, whether to use S&S ISAs as well as cash ISAs) and - like pensions - they are always going to be 'better' for some groups than others. Gordon Brown's myth of a 'tax free savings' society really is just that - and he has followed in the Tories footsteps (Lawson in the 80s with PEPS, John Major with TESSAs) - inevitably reinventing them so he can claim credit - so this ins't a party political observation. If no one ever paid taxes on savings (a subject that gets a lot of debate) you see, then taxes/tax reliefs would have to be higher/lower somewhere else to pay for the schools NHS and the police. I think your frustration at the lack of utility with ISAs (difficult to move or find a 'good' rate for) highlights this larger problem wherever the issue of taxation crops up.

Another point. They seem to have made cash ISAs too complicated for the average person (look at all the same questions coming up time and again on this forum) and that must have a slight disincentive effect.

macca64

It seems as though there are an "are isas worth it thread" every couple of months, or is it just me??

IMHO yes they are definately worth it, I personally don't want to pay any more tax than necessary, and transferring to a better rate doesn't take that long (a few minutes to fill in a form), and there is no loss of interest with some providers.

Can also ensure that basic rate tax payers do not become higher rate, and can also help in retirement to ensure that the allowance isn't reduced due to a higher amount of taxable income.

sheslookinhot

Yes they are. What hassle, fill in the transfer form and leave it for a year. Stop looking at the account every day.

earlgrey_3

Milarky wrote: »

I think your frustration at the lack of utility with ISAs (difficult to move or find a 'good' rate for) highlights this larger problem wherever the issue of taxation crops up.

Another point. They seem to have made cash ISAs too complicated for the average person (look at all the same questions coming up time and again on this forum) and that must have a slight disincentive effect.

Whether they're worth it largely depends on your attitude and how flush you are. After taking up an allowance of £3600 for three years you'd have about £11,000 plus interest and the interest on that at 6% pa would be £660 so a basic rate payer will save paying £132 in tax on that. Not exactly a mega deal but of course it compounds and builds up.

Another issue is how the scheme is operated and all the problems people on this board have. One reason for that seems to be that it all happens in April and the systems fall apart with the strain. Leaving it a bit later in the year and losing a few bob in interest might help. There also seems to be huge confusion on how it all works and what an ISA does.

ISAs and TESSAs were supposed to be vehicles for portable savings that you could move to whoever paid the best rates. We now have the bizarre situation where even NS&I don't allow transfers in, only transfers out.

So there are problems and could be an argument for doing the whole thing differently. I would be open to the case for dumping the whole lot and for us all to get an annual tax allowance for savings and investments without all the complications of these schemes. It could make investment decisions much simpler.

ISAs are supposed to be an incentive to save but the complications may be scaring just as many potential savers off.

Bernie

...too much of a hassle for the sake of putting £3,000 a year out of reach of Grasping Gordon. We took a different view, especially as I was a higher rate tax-payer.

Eleven years later, with a bit of assistance from IF via an Offset Mortgage, we are cruising towards retirement with a brace of max-ed out ISA earning compounding tax-free interest.

We move the ISAs whenever we see somewhere offering 0.25% more, you have to keep them on their toes.

We recently moved the wife's ISA from the Ruffler Bank when they dropped from 6.50% to 6.15% when Lloyds were offering 6.50% on a one-year fixed rate. A no-brainer!

Ruffler must have seen a lot of money leaving because they went back up to 6.25% the next month when rates had moved down! In fact, Lloyds' dropped their fixed rate to 6.00% by the time I was able to move my ISA so I ended up moving to Ruffler!

Worth the hassle? We think very much so...

:j

earlgrey_3

Bernie wrote: »

We recently moved the wife's ISA from the Ruffler Bank when they dropped from 6.50% to 6.15% when Lloyds were offering 6.50% on a one-year fixed rate.
A no-brainer!

Err, maybe.

On say £10K you would get an extra 0.35% which would be £35 for a full year but, snag is, you won't get that 0.35% for a full year.

The 1 year fixed rate starts from the day you sign. Anyone who paid in their ISA allowance would get just 5%. not 6.5%, until a transfer in from another ISA brought the total to over £9000. People are reporting the transfer to Lloyds taking up to eight weeks, in which case they'll get the 6.5% rate for just 10 months.

At the end of the 10 months or whatever at the fixed rate, their money will be dumped into Lloyds variable rate ISA, currently 4.75% for £10,000, and it could take another 8 weeks to get the money transferred to another ISA to get a better rate. In the meanwhile the account will be getting whatever Lloyds rate decide to pay at that time.

Overall, you will get considerably less than 6.5% but it's not easy to say exactly what. Over 14 months could well be a lot less than in the account you left.

So the rule is to always read the terms and conditions, all four A4 pages in the case of Lloyds, before signing up. For most people, depending on the value they put on their time, they'd need more than an extra 0.35% to make it worthwhile.

nrsql

I'll agree that you have to keep on top of them but is it really that much effort?
Don't think of it as 3k ish for this year. Think of 10 years time when you might have 40k stashed away that cannot be taxed without upsetting people. You may be a higher rate taxpayer then. And don't forget you don't have to put this on your tax return - could be a big saving in admin.
And you can always take it out if things change so little risk.

I went for cash ISAs that I thought I could leave but was wrong so am now moving them to Icesave (good admin and reasonable rate) and consolidating. It's just filling in a form for each and sending it off - not much hassle. Leaving Egg but will review later.
Hopefully if Icesave go down then it will be just one transfer form for all years with them.