£60k to invest; savings acc vs ISA
Discussion
Hi,
We (wife and I) have an amount of 60 thousand sat in a current account for a rainy day. To be honest that ‘rainy day’ hasn’t arrived in the last ten years and our mortgage is paid off with no significant debts, so we don’t think we will need access to it for a while.
With interest rates as they are at the moment, we’re thinking we should really be making this amount work for us more than it is.
My first thought was just to stick it in a fixed savings account which seem to currently offer about 5% but everyone I mention it to seems to say ISA. However most ISA’s I see seem to be offering 2 to 3%, so am I missing something here, why would that make it a better investment?
Could anyone explain, in layman’s terms, why the ISA would be a better deal?
Many thanks
We (wife and I) have an amount of 60 thousand sat in a current account for a rainy day. To be honest that ‘rainy day’ hasn’t arrived in the last ten years and our mortgage is paid off with no significant debts, so we don’t think we will need access to it for a while.
With interest rates as they are at the moment, we’re thinking we should really be making this amount work for us more than it is.
My first thought was just to stick it in a fixed savings account which seem to currently offer about 5% but everyone I mention it to seems to say ISA. However most ISA’s I see seem to be offering 2 to 3%, so am I missing something here, why would that make it a better investment?
Could anyone explain, in layman’s terms, why the ISA would be a better deal?
Many thanks
Have a look at the best buy tables here
www.savingschampion.co.uk
Many cash ISAs paying a guaranteed rate higher than 4%
R.
www.savingschampion.co.uk
Many cash ISAs paying a guaranteed rate higher than 4%
R.
Thanks all,
I was aware of the tax free element of the ISA but I presumed that would be offset by the higher interest rate in the savings account?
So we could in theory have an isa each of 20k (40k total) and then the remaining 20k in the savings account? Therefore the interest in the savings account would be less than £1000 so presume I’d not pay tax on that either?
I’ll have a read through the Savings Champ website and see what I can work out, thanks again.
I was aware of the tax free element of the ISA but I presumed that would be offset by the higher interest rate in the savings account?
So we could in theory have an isa each of 20k (40k total) and then the remaining 20k in the savings account? Therefore the interest in the savings account would be less than £1000 so presume I’d not pay tax on that either?
I’ll have a read through the Savings Champ website and see what I can work out, thanks again.
The other key element of an ISA is you can add to them in the next tax year. So although the return may be smaller, if you’ve no intention of using the cash and it’s likely to build an ISA is tax efficient. Pension may be better. Having had this conversation with my wife recently my non advice was at least get it in before last tax year ended and we can evaluate from there. As we’re now in a new tax year you’ve time to decide.
As frisbee mentioned it’s only 500 in tax free interest if you’re a higher rate payer.
As frisbee mentioned it’s only 500 in tax free interest if you’re a higher rate payer.
For me I invest in stocks and shares ISA's. The higher potential returns are tax free, which is a massive incentive. Only really works in you're in it for the long term. My average annual return rate over the last 10 years is 10%. For Cash ISA's it only start to make sense if you plan to build the pot each year.
P1Fanatic said:
Fixed rate 1y Cash ISA are 4.2% currently. Depends if you really want to keep it easy access. Another option is premium bonds. Easy access, tax free winnings, current interest/prize rate is 3% plus. Max holding is £50k pp so could do £30k each.
Yup this ^^^The big benefit of ISA's really is over the long term, if you're able to pay in year on year, with the tax free interest compounding, but never withdrawing. They are like a snowball rolled down a snowy hill. At first its just a tiny little thing but soon it gathers size and after a few years becomes a juggernaught.
Anyone who started with an ISA way back when they first came out in 1999 and has paid in the maximum ever since would now have over £240k invested in capital alone. Add to that all the compounded interest, and you would likely in the range of £265-285k depending on the rates. That's a very comfortable place to have that amount of cash now, especially as said above, you can earn >4% tax free on it all easily enough.
Historic ISA Limits 1999-now
So they key is not to look at them as a single year investment, think of the snowball analogy, but then again of course if you do start to look at them long term then Stocks and Shares ISA's can make even more sense. However some people may feel they already have enough exposure in their portfolio to stock market through say a large DC Pension, so cash ISA's do have a place, but they are not for everyone.
Also just to touch on a point earlier, tax on savings interest is as said above, but if you have income below £12,570 p/a then it increases to £5k p/a. So it all depends very much on your person circumstances and likely future circs also (for example you may have no income this year but you will start getting pensions next year....)
Premium bonds probably beating out most savings accounts if you've got a fair number and are at least higher rate tax payer. I don't use any savings accounts, waste of time if paying 45% (nice problem to have blah blah). Personally using precious ISA allowance to lock in a loss against inflation seems a waste, but I am likely younger than OP too, so swings and roundabouts in that one.
There was a video the other day from James Shack about premium bonds mind you, but it was aimed at people with less cash than most on here.
There was a video the other day from James Shack about premium bonds mind you, but it was aimed at people with less cash than most on here.
I think you have three sensible choices.
1.) Cash ISA - benefit from tax free status. Open two ISAs, one in your name and one in your wife's so you can shelter the full amount more quickly.
2.) Stocks and shares ISA all the benefits of the above with more potential for long term growth. Go low cost tracker with Vanguard or similar.
3.) You could pay it into your pensions and claim a load of income tax back. This could be a great idea if you don't need the money.
1.) Cash ISA - benefit from tax free status. Open two ISAs, one in your name and one in your wife's so you can shelter the full amount more quickly.
2.) Stocks and shares ISA all the benefits of the above with more potential for long term growth. Go low cost tracker with Vanguard or similar.
3.) You could pay it into your pensions and claim a load of income tax back. This could be a great idea if you don't need the money.
Thanks all really useful stuff.
To put a bit more meat on the bone I am a higher rate tax payer, wife isn’t and we are both 53 years old, so not quite ready for retirement yet! We are both lucky enough to have an old school non contributory final salary pension so don’t really want to put into a pension, as we’d like to access the money as ‘cash’ at some time the future (we have kids so potentially helping with marriage, first house costs etc).
Premium bonds could be an option I suppose, never really thought about them really. I’m also going to do a bit more research into the ISAs too as I can see they have their place.
To put a bit more meat on the bone I am a higher rate tax payer, wife isn’t and we are both 53 years old, so not quite ready for retirement yet! We are both lucky enough to have an old school non contributory final salary pension so don’t really want to put into a pension, as we’d like to access the money as ‘cash’ at some time the future (we have kids so potentially helping with marriage, first house costs etc).
Premium bonds could be an option I suppose, never really thought about them really. I’m also going to do a bit more research into the ISAs too as I can see they have their place.
Given you have not touched it for 10 years I would consider £40k into S&S ISA and £20k into PBs.
That keeps 20k easy access, within a few days. The other £40k fire and forget for a few years, say 4-5 years.
It is expected that we are going into a recession towards the end of 2023 so its likely that the market performance might be poor for the next 12-18 months thats why I would go for 4-5 year horizon on the S&S ISA.
Hopefully in 5 years your £40k might have turned into £50k and be tax free. That would be my thinking.
That keeps 20k easy access, within a few days. The other £40k fire and forget for a few years, say 4-5 years.
It is expected that we are going into a recession towards the end of 2023 so its likely that the market performance might be poor for the next 12-18 months thats why I would go for 4-5 year horizon on the S&S ISA.
Hopefully in 5 years your £40k might have turned into £50k and be tax free. That would be my thinking.
gotoPzero said:
Hopefully in 5 years your £40k might have turned into £50k and be tax free. That would be my thinking.
£40k to £50k over 5 years is only about 4.5% return year on year. You will almost certainly be able to get that out of a cash ISA now with the way interest rates are heading and likely to remain.... a SS ISA is a lot more risky over just 5years, so if that was the aim cash ISA is the best way to achieve that.To be worth the risk of the downsides of going SS vs cash I think you'd want to see at least 6% year on year, maybe more, so you'd be aiming for £54k + over that period.
Edited by AdamV12V on Tuesday 25th April 13:57
AdamV12V said:
gotoPzero said:
Hopefully in 5 years your £40k might have turned into £50k and be tax free. That would be my thinking.
£40k to £50k over 5 years is only about 4.5% return year on year. You will almost certainly be able to get that out of a cash ISA now with the way interest rates are heading and likely to remain.... a SS ISA is a lot more risky over just 5years, so if that was the aim cash ISA is the best way to achieve that.To be worth the risk of the downsides of going SS vs cash I think you'd want to see at least 6% year on year, maybe more, so you'd be aiming for £54k + over that period.
Edited by AdamV12V on Tuesday 25th April 13:57
4% would be my minimum.
Also, I doubt bank rates are going to stay this high tbh... I can see them back under 4% by the middle of 2024. Just look at what 5 year rates you can get in an ISA. Its well under 4%.
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