Cash ISA’s - are they worth it?

Genuinely intrigued by the complete need for a cash ISA. Even if you were a HRT you’d need to be holding over 10k in cash at the highest payer for there to be a tax concern & that’s quite a lot for an emergency fund unless you’ve got acres to tend to! I know you need some cash to prevent selling down in an emergency, but that much
might imply you ought to have a bit more money in the markets? (Not aimed at anyone - just a debate sparker)


Given that ISAs are primarily a long-term savings tool I don’t see it as a place for emergency funds. In fact that’s the worst place for it (unless you can replace it in a flexible ISA).

Sure, ISAs come into their own the larger the sum involved. The tax-free benefit is the incentive to build it.

I don’t see the connection with investing in the markets - if you’ve substantial sums to save. In fact, with risk-free savings in a Cash ISA, there’s no need to invest in s&s at all.

I just regard my ISA accounts as funds for use down the road. Easy access accounts have roughly the same return as ISAs so having one of them is handy for short term of course.

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Well I suppose my thinking is around this logic. Since ISA’s were launched you could have paid in about 306k

Cash into a variety of major Index Funds within an ISA since 1999 returns £898,361 (albeit with some serious cojones during the process)

Cash ISA paying the best rate since 1999 returns £360,010

(Source Vanguard)

So given you say Cash ISA’s aren’t the best for immediate liquidity - I think these stats are quite stark! A more cautious investment approach may have produced a lower differential but it’s still quite striking.

Contrary to what you said about those with money having no need to invest - these equity based differentials are what has left people with serious intergenerational wealth. Sitting on a lot of cash would have cost wealthy people a lot of money & in fact they don’t tend to do it.

If you invested a big lump sum just before Covid or Liz Truss you may have wished for a time that you went for cash, but I guess it shows the power of regularly investing at least once a year?

Not sure I understand the point here.

In any event, your earlier points about actual returns on historical savings are after the fact. I’ve no appetite for financial risk, so juggling funds across cash ISAs depending on prevailing rates has served me well (transferring to better rates more than once in a year is a nice challenge for me.

Yes, the ability to top up each year is a real clincher.

(You realise we now need to move these posts :roll_eyes:).

It’s a general point really, most very wealthy don’t have a lot of cash & you implied they have little need to invest. This doesn’t relate to ISA’s - but wealthy people are often actually in a lot of debt, accentuating the assets they hold and reducing the tax they are likely to be liable for. Of course, it is hard to save and as such cash can make sense for those who are living pay to pay. But a lot of people holding a large surplus of cash due to risk aversion, whilst missing the most unavoidable of all risks, inflation!

Yes it’s after the fact, but there is very little to suggest that a similar trend won’t ensue in the future, you could extrapolate the trend over longer than 20 years. As mentioned before, the one financial risk we can be sure of is inflation risk, which erodes the purchasing power of cash at a rate that interest cannot really offset. A lot of people are very exposed to that, whilst thinking they have sheltered themselves from financial risk.

I think if we leave it here it’s fine, a brief diversion to the value of Cash/Cash ISA’s & now back to Chase, who don’t offer one :smiley:

But I can split it out later, if others wanted to chip in or you fancy continuing the discussion?

I won’t prolong it, but this mischaracterises the situation. “Holding a large surplus of cash” sounds more like stuffing it in the mattress. Holding my ISAs in accounts attracting 5% + is a good compromise given the absence of risk.

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Capital risk yes. Obtaining the best rate of interest cannot offset inflation risk, even in the medium term.

Likewise though, moving on!

One thing to note is that with the bonds that only pay out on maturity, it can be as little as £4000 in savings to use up your £1000 personal savings allowance, down to just £2000 if you’re on the higher rate. Hence the interest in moving everything that would be in cash to a cash ISA and thereby avoid the problem.

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Took the decision to move things over.

I know there are cases where parking funds in a cash ISA would stop your tax code being altered having not exceeded the PSA.

Someone I know moved into a HRT role, so it made sense to open a cash ISA there based on what they had in cash savings at that time and with prevailing rates (and use the account, in the short to medium term at least ;))

It’s worth considering as well that before interest rates began to rise in 2022 - you’d have needed over 250k in cash savings at the best rate to breach the PSA! I think most would like the see things return somewhat to normal in this regard.

Yeah, MSE was telling people not to bother with ISAs not so long ago. Very short term view that and now they’re all-in. Snag being that those following their advice could be paying a fair chunk in tax .

With the rule changes this April letting you have any number of ISAs combined with the better ISA rates, I take the view that it’s better to put the cash into cash ISAs now. If they’re flexible then there’s no practical difference from a normal account, except for the lack of tax.

On the flexible front, Zopa and T212 seem to be close to ideal.

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So, £23,000 in cash at an easily obtainable 4.5% will put you over the recently reduced PSA (basic rate). Higher rate that’s only £13,000. If you are planning to buy a house but aren’t quite sure when, cash ISAs are a great idea. If you are not planning to buy a house, a large cash buffer means never having to sell your investments.

In the days of zero interest rates, sure, there was little point in having a Cash ISA, but I think that’s a different story now.

I am with you - cash savings and ISA’s definitely have their place. But it’s the investment timeframe that matters really.

I’m at my £500 PSA and I have far less than £10k saved outside of ISA wrappers.

~£6600 @6.17% in RBS/Natwest Digital Regular Savers, that’s a touch over £400
£100 for Nationwide’s ‘Fairer Share’.

That’s it. Any other interest earnings would be taxed at 40%.

Luckily my wife has lots of tax free allowance, so she holds most of our easy access savings, but if not I’d certainly benefit hugely from ISAs - even 8% (non-ISA) regular savers would be less efficient overall than a 5% ISA; 100% of 5 is greater than 60% of 8.

Whilst we’re all assuming that interest rates are on the way down, in reality nobody knows what way they’ll go in the future. However, we do know that money in an ISA will stay tax-free whether interest rates are 1% or 10%. With a flexible ISA, you’ve effectively got an ordinary savings account, just one that doesn’t hit you with a tax bill.

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Neatly put :relieved:

There has been suggestions the a new Labour Government is planning to cap ISA allowances at 100k (probably excluding interest /dividends)

Hopefully they’ll ditch those awful LISAs too and fold them into standard ISAs as I don’t see why the taxpayer should be funding first time buyer’s deposits.

Given that they have been going for some years now and many may have funds in excess of £100k in an ISA umbrella, would be interesting to see how they impose that :person_shrugging:

It’s a proposal by the Resolution Foundation. There’s no Labour policy on this (at the moment).

Edit to add; This is a better, but older, link to the actual proposal.

Not sure if they’d put a £100k cap on it. However, if you think about it, were ISAs to carry on indefinitely then you could reach a point when very few people were paying tax on their savings.

So, just as the triple lock on pensions is not sustainable long term, ISAs probably aren’t either.

If they did that, it’d be essentially a gift to whoever has one now as the funds which were supposed to be trapped until either an eligible first home purchase or age 60 would be theirs unconditionally. They’re not going to be able to penalise existing account holders.

Very few will be able to earn more in LISA bonus than they themselves will have to pay in taxation, fear not.