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Low interest rates on savings

This won't be much use to most people on this thread, but if you're entitled to any universal credit and you're also earning a certain amount, or get working tax credit or child tax credit, you can get a help to save account.

It takes two years to get any profit, but then it'll be 50% of your highest balance (and then the same thing happens again after two more years, and then the account closes). You can pay in up to £50 a month. If you can only pay in a fiver a month, that won't be much money, but it's by far the highest interest rate you're ever going to get.

I'm eligible because I get a tiny amount of disabled tax credit, and if I become ineligible then I can keep the account, so it might be handy for anyone that's on one of those benefits but is pretty sure they're going to go back to work or see an improvement in their finances soon (like if your kid becomes eligible for nursery vouchers or is old enough for school). You can withdraw the money easily anyway, and you still get the end bonus of whatever your highest balance was.

www.gov.uk

Get help with savings if you’re on a low income (Help to Save)

Get help with savings if you're on a low income (Help to Save) - how it works, what you'll get, eligibility, how it affects your benefits and how to apply online.
www.gov.uk www.gov.uk
 
teuchter said:
Maybe I did too.

I think platinumsage 's reply has identified the basic questions though.
Click to expand...
Well, to bypass any questions, I would say that your overarching principles (ignoring pension, which is a different matter) should be as follows:

1) Aways use up the ISA allowance before putting savings elsewhere. Not paying tax and not having to do the paperwork necessary to pay tax are the two big things you want to achieve from this.
2) Don’t bother with excess cash savings unless either you absolutely need short term liquidity or you are taking a short-term tactical position against the market. This is generally true anyway but doubly so when cash rates are as low as they currently are. Use the ISA to invest long term.
3) Since any cash savings you’re holding should only be short-term positions, they don’t need to be in an ISA (but see point 1).

Does that cover it?
 
platinumsage said:
Cash ISA: don't rely too much on the Personal Savings Allowance or Personal Allowance. You may think you're dealing with small sums now, but they can accumulate over time, and interest rates could well go up. e.g. £3000 earning 2% is £60, but £3000 a year for 20 years is £60,000 plus interest. If rates are then 6% you'd get £3600+ per year tax free from an ISA, but pay £720 tax every year if relying only on the £1000 Personal Savings Allowance (which could be abolished by then).
Click to expand...
Doesn't this still depend on the difference between interest rates available for ISA and non-ISA accounts though? If there were none, then obviously it would be a no-brainer to put as much into an ISA as possible.

But it seems like non ISA accounts always have a better interest rate. The last time I tried to work it out, it seemed like even if you ignored the personal savings allowance, the amount of interest you'd get either way was quite similar.

For example at the moment the best you can get on an easy access ISA is about 1% whereas you can get 1.5% on a regular account. For a one-year fix, best you can get for an ISA is about 1.5% while you can get around 2% on a regular account.

I don't understand what the reason for that difference in available interest rates is - but if it persisted over time, wouldn't you just end up in much the same place or even worse off, if for all those years you've been accepting a lower interest rate because your savings are within an ISA (obviously depending to some extent what rate of tax you pay)?
 
platinumsage said:
S&S should always be in an ISA or pension. If you have S&S without a tax wrapper in a General Investment Account you'd have income tax, dividend tax and capital gains tax to calculate and report, with all sorts of fun stuff like equalization payments and Section 104 pools to take into account. With an S&S ISA or pension you can ignore all that.
Click to expand...
So I guess my question here is, is it automatically worth it to move such S&S into an ISA wrapper as soon as you are able to - or is there still a calculation to be made, based on the costs of moving it (which seem to be inevitable).
 
teuchter said:
Doesn't this still depend on the difference between interest rates available for ISA and non-ISA accounts though? If there were none, then obviously it would be a no-brainer to put as much into an ISA as possible.

But it seems like non ISA accounts always have a better interest rate. The last time I tried to work it out, it seemed like even if you ignored the personal savings allowance, the amount of interest you'd get either way was quite similar.

For example at the moment the best you can get on an easy access ISA is about 1% whereas you can get 1.5% on a regular account. For a one-year fix, best you can get for an ISA is about 1.5% while you can get around 2% on a regular account.

I don't understand what the reason for that difference in available interest rates is - but if it persisted over time, wouldn't you just end up in much the same place or even worse off, if for all those years you've been accepting a lower interest rate because your savings are within an ISA (obviously depending to some extent what rate of tax you pay)?
Click to expand...

ISAs are more expensive to administer so that's why the rates can be around 0.5% lower (although 1.0% vs 1.5% is obviously very different to the days of 5.5% vs 6%).

I guess it really depends how much you are saving and for what purpose. A key point to note is that you can transfer all your years of accumulated ISA cash savings into a S&S ISA.
 
teuchter said:
So I guess my question here is, is it automatically worth it to move such S&S into an ISA wrapper as soon as you are able to - or is there still a calculation to be made, based on the costs of moving it (which seem to be inevitable).
Click to expand...

If it's a small amount, then it's likely that the dividends would fall within your dividend allowance, the interest (if any) would fall within your Personal Savings Allowance (if you have one) and capital gains would fall within your capital gains annual allowance and below the reporting threshold (all these allowances may be reduced in future years, or consumed by other aspects of your personal finances). I don't really see a case for not selling the investments and transferring the cash to an ISA though:

If the costs of moving it would be a significant chunk of the total, then it's probably unlikely to ever amount to a significant investment, and you would have to incur the sale costs at some stage anyway. It would therefore make sense to to sell, get the cash, and start over with an S&S ISA.

If the costs of moving would not be a significant chunk of the total, then you're likely going to fall foul of some sort of tax thing sooner rather than later, so should probably sell, move the cash to an ISA and repurchase inside the ISA. This is known as "Bed and ISA" (a term derived from the "Bed and Breakfast" capital gains tax minimisation measure) and some investment platforms make this an easy one-click process for you, possibly with reduced fees.
 
kabbes said:
Well, to bypass any questions, I would say that your overarching principles (ignoring pension, which is a different matter) should be as follows:

1) Aways use up the ISA allowance before putting savings elsewhere. Not paying tax and not having to do the paperwork necessary to pay tax are the two big things you want to achieve from this.
2) Don’t bother with excess cash savings unless either you absolutely need short term liquidity or you are taking a short-term tactical position against the market. This is generally true anyway but doubly so when cash rates are as low as they currently are. Use the ISA to invest long term.
3) Since any cash savings you’re holding should only be short-term positions, they don’t need to be in an ISA (but see point 1).

Does that cover it?
Click to expand...
That mostly covers it, along with platinumsage's posts.

On point (1) while not having to do paperwork is defnitely something I like, as I am self employed I have to do a tax return anyway, and entering interest from savings accounts is probably the most straightforward part of the form, so it doesn't bother me too much.

I can see that would be different for someone who wouldn't otherwise need to do a tax return though.
 
platinumsage said:
If it's a small amount, then it's likely that the dividends would fall within your dividend allowance, the interest (if any) would fall within your Personal Savings Allowance (if you have one) and capital gains would fall within your capital gains annual allowance and below the reporting threshold (all these allowances may be reduced in future years, or consumed by other aspects of your personal finances). I don't really see a case for not selling the investments and transferring the cash to an ISA though:

If the costs of moving it would be a significant chunk of the total, then it's probably unlikely to ever amount to a significant investment, and you would have to incur the sale costs at some stage anyway. It would therefore make sense to to sell, get the cash, and start over with an S&S ISA.

If the costs of moving would not be a significant chunk of the total, then you're likely going to fall foul of some sort of tax thing sooner rather than later, so should probably sell, move the cash to an ISA and repurchase inside the ISA. This is known as "Bed and ISA" (a term derived from the "Bed and Breakfast" capital gains tax minimisation measure) and some investment platforms make this an easy one-click process for you, possibly with reduced fees.
Click to expand...

(Bolded bit)
Selling & starting over would mean that I incur the sale costs twice, wouldn't it?

(I need to go and try and work out what the sale costs would be. Maybe they will be fairly small in which case I think I get your reasoning)
 
You can't predict the future in respect of what level of savings etc you will have.

Tax free limits may mean that tax on div and interest income + CGT isn't an issue now. But who knows what will be your situation later in life?.

you can take funds out of an ISA at any time (assuming you're not on a fixed rate deal )
but you can only put into it up to £20k p.a. Unlike pensions you can't make retrospective payments in.

Therefore - try to utilise some or all the 20k limit every year. If you don't you've lost the opportunity forever
 
teuchter said:
(Bolded bit)
Selling & starting over would mean that I incur the sale costs twice, wouldn't it?

(I need to go and try and work out what the sale costs would be. Maybe they will be fairly small in which case I think I get your reasoning)
Click to expand...

Sure, so it's only the repurchase costs you should consider really, as the sale costs are inevitable no matter what you do. The costs should be minimal unless you have a big portfolio of shares and investment trusts (in which case there'd be a greater imperative to swallow those costs asap). Really it's only the fixed dealing cost of a few quid per investment for ETFs and funds, whereas shares and investment trusts have 1% stamp duty.
 
teuchter said:
That mostly covers it, along with platinumsage's posts.

On point (1) while not having to do paperwork is defnitely something I like, as I am self employed I have to do a tax return anyway, and entering interest from savings accounts is probably the most straightforward part of the form, so it doesn't bother me too much.
Click to expand...

Regarding S&S paperwork, you might have just a few hundred pounds in a simple Vanguard non-ISA account with a couple of trackers , but you may find that this gives you UK authorised unit trust dividends, UK bank interest, overseas interest, overseas dividends and equalization payments all of which you'll have to work out how to report to HMRC on your self-assessment. It's easy to put those things in the wrong boxes, but not exactly hard to do correctly if you spend enough time reading up on it first.

By far the worst tax in this regard though is capital gains tax. You may accumulate gains over many years, and not worry about it too much as you never sell enough in any one year to go above your annual capital gains tax allowance. Eventually though you come to sell it all, or a big chunk of it, for example when you retire. This would likely take you over the capital gains tax allowance for that particular year, so you'd need to have records of every purchase date and purchase price going back possibly to the start decades earlier, lots of regular purchases and any sales or switches over the years could make this really quite complicated. HMRC expect spreadsheets of all your computations.
 
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platinumsage said:
Sure, so it's only the repurchase costs you should consider really, as the sale costs are inevitable no matter what you do.
Click to expand...
What I meant is that (in the long term) I'm paying sale+purchase+sale, rather than jut sale.

But, looking at what I've got (an ETF on Vanguard) it actually looks like there aren't any sale or purchase costs, if I've understood it right. So little reason not to do it.
 
nick said:
Already got funds in vanguard but outside a tax wrapper?
start here (from a quick Google)

Transfer your account | Vanguard UK Investor

Make life simpler by bringing your investments together in one low-fee account.
www.vanguardinvestor.co.uk www.vanguardinvestor.co.uk
Click to expand...
Thanks - but it's actually this that covers what I need to do:

What's a Bed and ISA, and how do I do it?

If you hold funds in a General Account and consider selling them and reinvesting the proceeds in an ISA, this process is a Bed and ISA.
www.vanguardinvestor.co.uk www.vanguardinvestor.co.uk
 
teuchter said:
What I meant is that (in the long term) I'm paying sale+purchase+sale, rather than jut sale.

But, looking at what I've got (an ETF on Vanguard) it actually looks like there aren't any sale or purchase costs, if I've understood it right. So little reason not to do it.
Click to expand...

In that case it's a no-brainer, although will you be out of the market for a few days so could miss some growth (or luckily, but less likely, avoid a loss). You can remove this risk though if you have spare cash by paying an equivalent amount of cash into the ISA as you would gain from selling the non-ISA investments, timing your ISA ETF purchase to happen at the same time (and for the same price) as your non-ISA ETF sale.
 
platinumsage said:
In that case it's a no-brainer, although will you be out of the market for a few days so could miss some growth (or luckily, but less likely, avoid a loss). You can remove this risk though if you have spare cash by paying an equivalent amount of cash into the ISA as you would gain from selling the non-ISA investments, timing your ISA ETF purchase to happen at the same time as your non-ISA ETF sale.
Click to expand...
Yes, this thought was what was just going through my mind.

There is also the psychological hurdle of selling something that is currently worth slightly less than when I bought it about a year ago, but I realise that's not a rational one.
 
teuchter said:
There is also the psychological hurdle of selling something that is currently worth slightly less than when I bought it about a year ago, but I realise that's not a rational one.
Click to expand...

On the positive psychological side, that loss will be wiped from the record in your new ISA, so it won't be staring you in the face every time you log in.
 
platinumsage said:
On the positive psychological side, that loss will be wiped from the record in your new ISA, so it won't be staring you in the face every time you log in.
Click to expand...
Good point, although I'll have to try and erase the tidy round number originally invested from my memory.
 
platinumsage said:
On the positive psychological side, that loss will be wiped from the record in your new ISA, so it won't be staring you in the face every time you log in.
Click to expand...
Blimey.. I could see how that could turn into a good way of deluding yourself. I think my "growth" funds are going to be starng me in the face for some time.
 
Winot said:
I’d be tempted to stick that in premium bonds (I’m assuming you need instant access). I know the average payout/interest is low but at least there’s a chance of a big win.
Click to expand...
We’re looking at alternative. We’ve a similar amount in another account which is just as miserable an earner. These monies are designated for specific cause so it’s important to have immediate access to the money, but some sort of income, even if not a lot, would be useful.
 
Winot said:
I’d be tempted to stick that in premium bonds (I’m assuming you need instant access). I know the average payout/interest is low but at least there’s a chance of a big win.
Click to expand...
A friend of mine puts money in premium bonds. They're self-employed, the kind of role with erratic income, dependent on commissions, clients paying invoices, etc, and they set aside some money every month or whenever they get paid towards their tax bill.

They figured that their money is better off in premium bonds while sitting there waiting to pay the tax bill every six months. Either that or in a savings account earning virtually no interest, so it's worth taking a punt and they sometimes win.
 
I'm regretting choosing Vanguard's LifeStrategy 60% just over a year ago for half of my investments when i set up a Vanguard ISA. It seemed a 'safer' option at the time. But it's doing far worse than the other funds I've invested in (including FTSE 100 and S&P 500) - and I'm seeing a few articles saying the 60% equity/ 40% bond model doesn't work as well in a high inflation environment.
 
Yes I flagged that on this thread a year ago, and bonds have had a torrid time since January. Still, it perhaps sounds like half your investments are 100% equity, giving you 20% bonds overall. The fact they’re down a few percent shouldn’t worry you if you’re investing for ten years or more, and if you maintain your asset allocation any new money you put in will be buying them at increasingly better rates.
 
Threshers_Flail said:
I'm going to be looking at investing again today, which usually involves rereading this thread and getting overwhelmed and deciding to hold off for a while longer
Click to expand...
Just do what I did and start with £25 a month. You'd spend that on a takeaway.

I've just checked my app now and overall I'm up 7.99% five years on. Which is astonishing to me tbh. Hundreds of pounds I wouldn't otherwise have had.
 
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