The Lemon Fool

Neither I nor my wife have ever had cash ISAs. We have managed to get all our equity investments sheltered in Stocks and Shares ISAs, and are now in old-age slow drawdown from them.

We stopped subscribing to these a few years ago, and are unlikely to do so again, having put surplus property into trust and not earning anymore.

We keep about £50,000 in a savings account (Saga) as a cash reserve in case market conditions mean I'd prefer not to sell when stocks are low.

Being therefore quite ignorant of cash ISAs, I wonder if there is any advantage to moving cash savings over from Saga (at 4.75% AER) to ISAs.

One potential problem I foresee is that with unsheltered savings accounts switching to better interest payers is relatively swift, I imagine there's more faff with transferring cash ISAs? Not that I bother switching that much; just occasionally if things get out of kilter....

Should I look further into this? Any advice for a cash ISA novice?

Thanks

What is your tax position.

Do you have any spare savings or personal allowance.

Would you consider different savings types 12 month, 24 month, instant access. Higher rates are available for reduced access.

Rates are expected to fall

Flexible ISAs allow withdrawls and refunding up to the allowances. A consideration but probably not a deal breaker. Having your money out of site of the tax man is always a good idea in my opinion.

UnclePhilip wrote:One potential problem I foresee is that with unsheltered savings accounts switching to better interest payers is relatively swift, I imagine there's more faff with transferring cash ISAs? Not that I bother switching that much; just occasionally if things get out of kilter....

In the dim and distant past switching cash ISAs was an absolute pain, with the whole process being paper based and taking months to complete, and although now it is a lot easier you are still looking at a couple of weeks for the transfer to be done.

However an awful lot (most?) cash ISAs are fixed interest rates for a set period and so you are likely only looking to transfer every year or two.

As they are fixed rates for a set period, then if you were thinking of using them to store cash from a rainy day savings account that you might draw on then you would obviously need to consider any penalties for early withdrawal.

Whether they are worth it depends on your tax position. They fell out of favour when the Personal Savings Allowance was introduced and that happened after interest rates had crashed. Those two things together meant that most people were unlikely to have savings that earned more than £1,000 or £500 interest that was covered by the allowance, and with fewer people taking up cash ISAs the rates being offered became uncompetitive with standard savings rates.

However now for people who do pay tax, do have reasonably substantial cash savings, and don't want to put money into investments, then they are useful as a short term holding place.

Also using them as a short term holding place, it isn't the final choice it used to be as money from a cash ISA can be transferred into an investment ISA (or the other way) without the money losing its ISA status.

Take a look at Martin Lewis's site for more info, including best rates etc

https://www.moneysavingexpert.com/savin ... -cash-isa/

Also, you don't mention your tax position. If you are a 20% tax payer then an ISA paying around 4% or more would match your Saga non-ISA account. If you pay 40% tax then you would only need to beat 3.4% in an ISA. This doesn't include the £1000 tax free savings interest allowance.

Virgin Bank and Coventry Building Society are paying above 5% at the moment, but with limited withdrawals.

Edit: Forgot to mention that you could put £20k each in one before April 6th, and then a further £20k each after that date.

Thanks for replies. We're both lower rate taxpayers, and looking at the Lewis website it seems you need about £20,000 in savings to breach the £1,000 savings allowance.

On that basis, it all looks rather marginal, but I'll have a look at the comparison websites....

UnclePhilip wrote:Thanks for replies. We're both lower rate taxpayers, and looking at the Lewis website it seems you need about £20,000 in savings to breach the £1,000 savings allowance.

On that basis, it all looks rather marginal, but I'll have a look at the comparison websites....

For now...
Circumstances can change, I think I'm going to touch the limits next tax year as I have regular savers and locked in for 12 months some 5 and 6% fixed rates and expect some easy access balances. Though I might be able wangle the starting savings rate interest band if I'm very careful with earnings.

UnclePhilip wrote:We keep about £50,000 in a savings account (Saga) as a cash reserve in case market conditions mean I'd prefer not to sell when stocks are low.

Being therefore quite ignorant of cash ISAs, I wonder if there is any advantage to moving cash savings over from Saga (at 4.75% AER) to ISAs.

Assuming you mean the Saga Easy Access Savings Account, and you are happy with it, Saga have a Cash ISA with exactly the same 4.75% interest rate (including 0.49% bonus for 12 months) as the Easy Access account.
I don't know if the bonus is able to be extended in the same way as the Easy Access account.
It is not a 'Flexible' ISA, so any withdrawn cash cannot be returned within the IAS allowance.
If you kept enough in the Easy Access accounts to use the £1000 savings tax allowance (say £20k each) and put the extra £10k in the Cash ISA, then any emergency finance could be taken from the Easy Access accounts first, making it unlikely you would be withdrawing from the Cash ISA.

Adrian

Niksen wrote:In the dim and distant past switching cash ISAs was an absolute pain, with the whole process being paper based and taking months to complete, and although now it is a lot easier you are still looking at a couple of weeks for the transfer to be done.

If you are moving more than about 10K between different ISA providers to get a better rate, it can still be a very very slow process, I'm talking months to complete a transfer.
I read somewhere it still involves someone writing a paper cheque and walking it over to the other bank.

At a guess the reason the banks don't invest in more up to date technology for the ISA process is that it could all disappear tomorrow if the government decide to change the rules.

Lanark wrote:At a guess the reason the banks don't invest in more up to date technology for the ISA process is that it could all disappear tomorrow if the government decide to change the rules.

You are more generous with your view than I am, as I believe that it is simply so there is a barrier (even if it is the psychological lost interest) to people moving to a different ISA provider, especially since this April ISAs will have been around for a quarter of a century, and that isn’t counting the prior decade of TESSAs.

UnclePhilip wrote:Thanks for replies. We're both lower rate taxpayers, and looking at the Lewis website it seems you need about £20,000 in savings to breach the £1,000 savings allowance.

Don't forget that currently, for each of you, in addition, up to the next £5k of unsheltered savings interest may (depending on your tax situation) be taxed at 0% rate. (This could change going forwards, of course.) https://www.gov.uk/apply-tax-free-interest-on-savings
I'd suggest you plug some numbers into a tax calculator to see the effect of the surrounding rules.

Hi UnclePhilip

I was in your situation before Christmas - liquidated and moved some investment in an ii Stocks and Shares ISA to 3 cash isas (all online). Process was relatively straightforward and took a week for Charter Savings Bank, and a fortnight for Newcastle Building Society and Aldermore (although this was over Xmas / New Year). Posted thread on my experience here viewtopic.php?f=11&t=42065