Cash ISAs - am I missing something?
Discussion
I've always had money in cash ISAs since 16, however, not having much in there and also higher interest rates of past years have led me to just accept it's the best place for relatively small amounts of money.
Recently I've had more expendable income and have been looking into making my money work a bit harder. Last year I opened a lending account on a p2p loan site in which I currently have £4k at 5.8%. I have £8k in my cash ISA at 1.76%.
I'm considering taking it all out of the ISA and sticking it into the p2p account to earn more, I understand this is subject to tax (only lower rate). Is there a reason I shouldn't?
Thanks,
Chris.
Recently I've had more expendable income and have been looking into making my money work a bit harder. Last year I opened a lending account on a p2p loan site in which I currently have £4k at 5.8%. I have £8k in my cash ISA at 1.76%.
I'm considering taking it all out of the ISA and sticking it into the p2p account to earn more, I understand this is subject to tax (only lower rate). Is there a reason I shouldn't?
Thanks,
Chris.
Shaoxter said:
Erm default risk??
I accept there is a chance of this, however the company I use charge the borrower a fee which goes into a fund which reimburses the lender upon a borrower defaulting on payments. I think also the extra interest earned less defaults would be more than an ISA.I suppose my question was more relating to ISAs rather than comparing to p2p loans, I just used that as an example. Is it just a case that cash ISA are a better place for money than the "easy access" savings accounts banks offer at 0.1% etc? Am I comparing apples with oranges?
Phateuk said:
Am I comparing apples with oranges?
Yes. The extra interest is rewarding you for taking a bigger risk than is involved with a cash ISA.Although you do have a point that there a lot of ISA accounts that take advantage of savers not shopping around and get away with offering a relatively poor interest rate.
trickywoo said:
Yes. The extra interest is rewarding you for taking a bigger risk than is involved with a cash ISA.
Although you do have a point that there a lot of ISA accounts that take advantage of savers not shopping around and get away with offering a relatively poor interest rate.
My main reason for looking into alternatives is this, I've had to change ISAs 3 times in the last 4 years due to this. You swap for a nice rate, then later get a letter informing you that rates are dropping. Natwest didn't even give me the exact % - they decided to spell it out with an example "If you had £1000, last year you'd have earned £20, next year you'll earn £10" Although you do have a point that there a lot of ISA accounts that take advantage of savers not shopping around and get away with offering a relatively poor interest rate.
Phateuk said:
Natwest didn't even give me the exact % - they decided to spell it out with an example "If you had £1000, last year you'd have earned £20, next year you'll earn £10"
I got that as well - there's a summary block below it with the interest rates in.If 1.76% you quoted is from NatWest then you're not getting that now, that rate finished 6mths ago.
To be honest, for a few £K a couple of % is neither here nor there.
Sheepshanks said:
I got that as well - there's a summary block below it with the interest rates in.
If 1.76% you quoted is from NatWest then you're not getting that now, that rate finished 6mths ago.
To be honest, for a few £K a couple of % is neither here nor there.
I must have stopped reading after the example If 1.76% you quoted is from NatWest then you're not getting that now, that rate finished 6mths ago.
To be honest, for a few £K a couple of % is neither here nor there.
I instantly moved it after that - I'm now with virgin which was the best at the time.I appreciate it doesn't make a great deal of difference, but it's pretty deflating seeing such a low rate.
The point with ISAs is that you can only put a certain amount in per tax year, and if you withdraw it for a higher interest rate in a non-sheltered product (such as your P2P or wherever), you can never re-use a previous tax years allocation. If you didn't have much in the ISA then that probably doesn't matter, and if you don't think interest rates are going up any time soon, then it doesn't matter. Trouble is, if you had the maximum amount in ISAs (I forget what it was, over the years since TESSAs it's quite a figure if you've fully subscribed every year) and you pull it out, if the interest rates go back up you'll be paying tax on that.
ETA: For 8k it doesn't really matter, because with the new ISA rules that's below your threshold for a single year. You could withdraw it all, invest it elsewhere, then still put back the full amount if the rates improve.
So it depends on your circumstances, your view of whether interest rates will go back up any time soon. There's an argument that an S&S ISA would be better anyway - protection from tax and potentially better interest (well, not interest, but income/growth/both).
Which P2P lender did you use, if you don't mind me asking? I'm looking at doing something like that to try to improve on the pathetic savings interest rates.
ETA: For 8k it doesn't really matter, because with the new ISA rules that's below your threshold for a single year. You could withdraw it all, invest it elsewhere, then still put back the full amount if the rates improve.
So it depends on your circumstances, your view of whether interest rates will go back up any time soon. There's an argument that an S&S ISA would be better anyway - protection from tax and potentially better interest (well, not interest, but income/growth/both).
Which P2P lender did you use, if you don't mind me asking? I'm looking at doing something like that to try to improve on the pathetic savings interest rates.
Edited by droopsnoot on Thursday 10th July 10:09
droopsnoot said:
The point with ISAs is that you can only put a certain amount in per tax year, and if you withdraw it for a higher interest rate in a non-sheltered product (such as your P2P or wherever), you can never re-use a previous tax years allocation. If you didn't have much in the ISA then that probably doesn't matter, and if you don't think interest rates are going up any time soon, then it doesn't matter. Trouble is, if you had the maximum amount in ISAs (I forget what it was, over the years since TESSAs it's quite a figure if you've fully subscribed every year) and you pull it out, if the interest rates go back up you'll be paying tax on that.
ETA: For 8k it doesn't really matter, because with the new ISA rules that's below your threshold for a single year. You could withdraw it all, invest it elsewhere, then still put back the full amount if the rates improve.
So it depends on your circumstances, your view of whether interest rates will go back up any time soon. There's an argument that an S&S ISA would be better anyway - protection from tax and potentially better interest (well, not interest, but income/growth/both).
Which P2P lender did you use, if you don't mind me asking? I'm looking at doing something like that to try to improve on the pathetic savings interest rates.
Thanks for the detailed response ETA: For 8k it doesn't really matter, because with the new ISA rules that's below your threshold for a single year. You could withdraw it all, invest it elsewhere, then still put back the full amount if the rates improve.
So it depends on your circumstances, your view of whether interest rates will go back up any time soon. There's an argument that an S&S ISA would be better anyway - protection from tax and potentially better interest (well, not interest, but income/growth/both).
Which P2P lender did you use, if you don't mind me asking? I'm looking at doing something like that to try to improve on the pathetic savings interest rates.
Edited by droopsnoot on Thursday 10th July 10:09
The point you make about having a much larger amount invested does make sense - I think I read someone it's possible to have over £100k in an ISA if started years ago. In that case it would make sense to keep it there safe from tax.
I've been reading up on these things recently and I actually opened a S&S ISA last week, just waiting for it all to be set up. I think I'll keep putting money into p2p and S&S and just leave the cash ISA as-is.
My p2p account is with zopa. I can provide a referral code which gets us both £25 - if you're thinking of setting up an account with them let me know
I've moved more money into a stocks and shares ISA in recent years, mostly in trackers and "set and forget" stuff. Still keep a chunk in the cash ISA mind you (2:1 with the shares), but that's as much about personal risk tolerance than anything else. Have a chunk earmarked to pay off the mortgage and I just don't want to take risks with it, even if it does mean I'm not getting the best return. On the subject of P2P lending, I believe that qualifies for ISA status from next year? I've held off P2P lending up to now, but will certainly put some money into it when it's available in ISA form.
I just don't get cash ISA's. With the rates available surely you can never even keep up with inflation never mind growth. I use a mix of shares and funds giving me an income from dividends worth over 4% per annum and growth which is well ahead of inflation.
You don't need to be a financial genius to achieve this.
You don't need to be a financial genius to achieve this.
Sheepshanks said:
bad company said:
You don't need to be a financial genius to achieve this.
No, but you're taking a risk with the capital.Seriously look at low risk funds and you have an excellent chance of making an excellent return. Or if you prefer stick to cash and watch your capital erode.
Sheepshanks said:
bad company said:
Seriously look at low risk funds and you have an excellent chance of making an excellent return.
That's exactly what I do, but "low risk" and "excellent return" aren't compatible phrases.What's wrong with the Santander 123 account?
3% interest up to 20k then cash back on your utilities bills. If your gas and electricity is with ovo then they allow you to overpay up to £775 per month and give you 3% interest on your overpayment....on top of the Santander cash back !!! (I appreciate ofgem are looking at ovo).
What I'm trying to say in a rather obtuse manner is to not allow the tax tail to wag the dog
3% interest up to 20k then cash back on your utilities bills. If your gas and electricity is with ovo then they allow you to overpay up to £775 per month and give you 3% interest on your overpayment....on top of the Santander cash back !!! (I appreciate ofgem are looking at ovo).
What I'm trying to say in a rather obtuse manner is to not allow the tax tail to wag the dog
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