Are Cash ISA's worth it right now?

Redgie

Redgie

Redgie

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So I'm looking for something to do with a small amount of money saved up. I'm not long out of student-hood and currently have very few expenses outside of commuting, meals out etc. I currently have ~£3,000 to put away, which will rise nearer to the Cash ISA tax-free allowance of £5,760 in the coming months.

Looking at rates for the bank I'm currently with, this would get me an annual interest rate of around £45 (For a full year - Not the remainder of the tax year). Using the bank in question would be much more convenient due to having all accounts and cards in one place (And usable via one website / app!).

Alternatively, shopping around and going elsewhere can get me in the region of £70-£90 annually, with the downside of being with an unfamiliar company who won't be able to instantly set it up for me, will need to perform longer checks, and won't integrate with existing digital banking sites and apps that I currently use.

So, faced with the possibility of less than £90 worth of interest over the course of a year, and even more likely less than £50 worth, I'm forced to ask the question of, is it worth it right now? I realise Cash ISA's are unlikely to make a huge jump upwards in terms of rates anytime in the next 12 months (Begging the question of "If not now, when?"), but it seems trivial to move such a quantity of money around for such little gain, even if it is instant access.

Tl;dr: In short, I have three main questions:
1. Is it worth it based on the above?
2. Provided it facilitates free withdrawals, can I withdraw the ISA's contents (Minus say £1) and move it to a better one when the new tax year starts without a problem?
3. (Not mentioned above) Are there any downsides to monthly paid interest such as NatWest's Cash ISA?

Thanks all :)!
 
Redgie said:
1. Is it worth it based on the above?

Yes, provided you're saving for the long-term. The interest rates might be rubbish now, but they'll go up at some point (hopefully) and when they do you'll have accumulated a bunch more money to make interest off, basically. Shopping around is worth it I'd say. ISAs don't take much management and are easy to set up so get the best rate you can.

2. Provided it facilitates free withdrawals, can I withdraw the ISA's contents (Minus say £1) and move it to a better one when the new tax year starts without a problem?

Sort of. Though this isn't the way to do it. You have to transfer an ISA. If you withdraw it and plant it into another ISA, that money would use up your allowance for the current year (even if you'd saved it last year), so you wouldn't be able to add to it. Basically, you shouldn't withdraw money for an ISA, unless it is to pay for what you're saving for. Transfers Transfers Transfers. You should read up more on how ISAs actually work, with the yearly allowance. MoneySavingExpert.com is a good start.

3. (Not mentioned above) Are there any downsides to monthly paid interest such as NatWest's Cash ISA?

No
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What is an ISA?
 
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1. It's definitely worth it as long as you are happy to be without the money long term. The benefit of an ISA is not a short term gain, as there are better ways to make use of the money you have. The term "use it or lose it", is a good one. You get a tax free allowance every year, so every year you can add to this, so in 5 years time you will have built up a tax free allowance of £25-30k (depending on allowance increases). So that £50-70 interest in year 1 isn't worth shouting about. But that "potential" interest in year 5 certainly is, and there isn't a safer way to invest your money for the returns.

2. If you find a better ISA in the next year, you are allowed to transfer previous years ISA's. So for example if you put your 2013/14 allowance into your current bank, and come April 2014 you find a better rate with a different bank. You can (provided the bank allows transfer in) transfer the full amount from your old ISA to the new ISA, and still have your full 2014/15 allowance to add as well.

3. I currently have a 2012/13 ISA which is monthly paid, and I think the interest rate was something like 0.001% less. So nothing noticeable. Just find the best possible ISA rate you can get for your 2013/14 allowance, and stick it in there. I don't really see any benefit to keeping it with your existing bank. The whole point of an ISA is to dump the cash in it, and leave it. There's no need to be able to view it every time you log onto your current account. As if you are withdrawing cash from an ISA, it's a pretty pointless exercise in the first place. Just get a current account that pays interest on your balance. E.G Santander 123
 
No definately not, im not getting into a long discussion as to why not, i recently closed my cash isa of 6k, and will be putting it straight into premium bonds.. the return on an ISA nowerdays if really poor.
 
I have a full years allowance in a Santander ISA which I opened last financial year. The rate was the best at the time, but it's shot right down now. If I move now (7 months or so after I opened it) I trust I won't lose the interest I've already made? I'll be putting another full years allowance in the 'new' ISA.
 
Neoni said:
No definately not, im not getting into a long discussion as to why not, i recently closed my cash isa of 6k, and will be putting it straight into premium bonds.. the return on an ISA nowerdays if really poor.
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potentially an amazing troll post :D
 
Neoni said:
No definately not, im not getting into a long discussion as to why not, i recently closed my cash isa of 6k, and will be putting it straight into premium bonds.. the return on an ISA nowerdays if really poor.
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Genius. Have you received your job application from Goldman Sachs yet? :)
 
Neoni said:
No definately not, im not getting into a long discussion as to why not, i recently closed my cash isa of 6k, and will be putting it straight into premium bonds.. the return on an ISA nowerdays if really poor.
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Are premium bonds really a comparable alternative? I'm led to believe that the winnings usually work out as being less than or similar to the interest rate?

yer_averagejoe said:
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rossk26 said:
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Thanks very much guys :) One key point I guess you were both making is in respect to your ability to effectively build up a significantly higher level of tax-free savings year on year, and switch the rates for better ones as you do, which isn't something I realised (And wasn't explained that clearly on the many sites I've been on this morning!).

One other question, if I open a Cash ISA now, will I be tied in for 12 months, or until the end of the financial year? Or is this simply dependent on the company behind the ISA?
 
Ahleckz said:
I have a full years allowance in a Santander ISA which I opened last financial year. The rate was the best at the time, but it's shot right down now. If I move now (7 months or so after I opened it) I trust I won't lose the interest I've already made? I'll be putting another full years allowance in the 'new' ISA.
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Check the conditions of the ISA. Some come with up to 180 days notice (crazy I know). And some can penalize you about 1 months interest for withdrawing.
 
Redgie said:
One other question, if I open a Cash ISA now, will I be tied in for 12 months, or until the end of the financial year? Or is this simply dependent on the company behind the ISA?
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Check the interest rates and terms of the ISA. Some come with a fixed rate and a bonus for X amount of months/years.

But generally you won't be tied in and are free to transfer at the end of the financial year.

I set up my first ISA in 2012/13 financial year, and the rate of 2.5% continues to this day, so I kept my 2012/13 allowance in that ISA, and set up a brand new one for 2013/14, as all the "transfer in" ISA's offered very low %APR.
 
rossk26 said:
Check the interest rates and terms of the ISA. Some come with a fixed rate and a bonus for X amount of months/years.

But generally you won't be tied in and are free to transfer at the end of the financial year.

I set up my first ISA in 2012/13 financial year, and the rate of 2.5% continues to this day, so I kept my 2012/13 allowance in that ISA, and set up a brand new one for 2013/14, as all the "transfer in" ISA's offered very low %APR.
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Thank you again, that's great :)

Bossk128 said:
I assume you don't have a mortgage, if you do: offset savings?
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Nope no mortgage to pay off :)!
 
Isas are only marginally better than putting the money in a shoebox under the bed. My money is in a stocks and shares is a which ha, in the past been worth less than I put into it (in which case the shoebox really WOULD have been better) but since the FTSE went over the 6000 mark, it has done pretty well.
 
Yeah as above. Back in my days, ISAs were 5%. We get 1.0%-1.5% if we're lucky, then the banks slash it to 0.5% after a year so that you have to open a new ISA every year to get the old 1.5% rate. Bit naughty of them IMO.
 
Mr-White said:
Ouch, because I opened my ISA pre 2013 I'm getting 2.75%, ISAs opened this year only recieve 1.7% :eek:

MW
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Exactly my point, i realise i made a brief post on it, but the return for me over 3-5 years is pointless..

i lost my interest when i closed my cash isa, if you are comfortable knowing you cant touch that money without being penalised then go for it, but for me it isnt a quick enough return
 
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I've been saving hard since end of march and have enough for a couple of ISA's (all of which is the intention of being a house deposit), but surely there is no point for a short 6 month period? Any alternatives, apart from putting it all on red? :p
 
There is much higher rate of return options out there, but how legitimate are they? and how safe will your money be really? that unfortunately is why ISA is a safe option but as mentioned no good over short periods of time.
 
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