Are ISAs worth it?

[businessor]

Hello

Due to this dire economic climate, I am looking for opportunities and I am considering cash ISAs. However, I am not very clear on few things:

1) Is capital at risk? (no problem if interest rate is at risk)
2) what is the maximum deposit on ISAs that has tax allowance? I read about 20k allowance but not sure if this is a yearly additional deposit or the total deposit or interest gained etc? If it is that you only save tax on whatever interest you get on 20k maximum no matter what, then I think it's a bit of a joke as it's a £300 saving per year given a 3% interest rate and versus a 45% tax?
3) can you have many ISAs and are there any alternatives?

Thanks!

 

[DontAsk]

1) Is capital at risk? (no problem if interest rate is at risk)

No, not in a cash ISA.

2) what is the maximum deposit on ISAs that has tax allowance?

£20k/yr.

I read about 20k allowance but not sure if this is a yearly additional deposit or the total deposit or interest gained etc? If it is that you only save tax on whatever interest you get on 20k maximum no matter what, then I think it's a bit of a joke as it's a £300 saving per year given a 3% interest rate and versus a 45% tax?

If you invest £20k every year then you can eventually achieve a considerable saving in tax. There are ISA millionaires, i.e., their year on year investment has grown, all shielded from tax.

3) can you have many ISAs and are there any alternatives?

You can open different ISAs in subsequent years.

The issue I have with cash ISAs is that the interest rates on offer are invariably lower than similar term savings accounts.

 

[WaveJumper]

I would suggest anyone not making use of there ISA allowance is missing a big trick, you could get a self investing ISA and pick your own investments if you wish and as above mentioned all your gains are tax free

 

[macScot]

My 2 cents

No, your cash will not be at risk provided that you open the account with a reputable and established ISA provider. There are a lot of scammers out there who could claim to provide ISA accounts with good returns and could simply be stealing your money. Only go with large reputable organisations that have been in the business for decades.

Regarding ISA millionaires, I cannot ever see that happening with cash-only ISA as the interest rates are never as good as fixed deposit savings accounts. You have to be investing in stocks and shares for something like that to happen over time. Again choosing and picking the right stocks and shares can be risky as well as rewarding, so do your own research. If you are not interested in researching individual stocks and shares and just want safer options then pick vanguard funds such as S&P 500 or FTSE or Global trackers.
The advantage of picking a cash ISA or having more of the money in cash vs shares is that if you need the cash for emergencies then you will not lose out. Stocks and Shares can go up and down in value over time so if all your investment is in stocks then you may end up losing out if the values are down and you are forced to sell some due to an emergency.

I used to think it was a total allowance of 20k so lost out over the years by not investing more, only realised a couple of years ago that it is an annual allowance so have started using up my allowance over the last 2 years, mainly trying to focus on dividend-paying shares that I have researched or REITS.
I have invested cash in NS&I bonds from where I can draw out money for emergencies and am using my ISA allowance to invest in different types of shares, mainly dividend-paying ones, some in REITS and some in growth stocks.

 

[DontAsk]

Only go with large reputable organisations that have been in the business for decades.

And miss out on the best deals, which are often from newer providers.

It's easy to check that an institution is covered by the FSCS.

 

[macScot]

And miss out on the best deals, which are often from newer providers.

It's easy to check that an institution is covered by the FSCS.

My point is that there is less risk in going with reputable long-established firms.

You need to be aware of:

1) Scammers who fake being registered with the FSCS or similar tactics

Fraud & scams

Details of the latest scams in the financial services sector.

www.fscs.org.uk

and

2) Legit companies that were registered with the FSCS and failed

Firms list

View a list of failed firms to see if the firm you’ve been dealing with appears. Each firm has its own page containing details of its specific circumstances.

www.fscs.org.uk

3) Protection is limited to 85k per eligible person per firm.

 

[DontAsk]

My point is that there is less risk in going with reputable long-established firms.

You need to be aware of:

1) Scammers who fake being registered with the FSCS or similar tactics

Fraud & scams

Details of the latest scams in the financial services sector.

www.fscs.org.uk

It's easy to check.

and

2) Legit companies that were registered with the FSCS and failed

Firms list

View a list of failed firms to see if the firm you’ve been dealing with appears. Each firm has its own page containing details of its specific circumstances.

www.fscs.org.uk

That's what the compensation scheme is for.

I didn't go through the whole list but I didn't see any that look like cash savings providers which is, after all, the subject of this thread..

3) Protection is limited to 85k per eligible person per firm.

Regardless of the age of the company.

I split my savings across multiple accounts in non-linked companies.

 

[macScot]

It's easy to check.

No, scammers are very good and even intelligent people get caught out it is better to be cautious than a victim.

That's what the compensation scheme is for.

I didn't go through the whole list but I didn't see any that look like cash savings providers which is, after all, the subject of this thread..


Regardless of the age of the company.

I split my savings across multiple accounts in non-linked companies.

Cash ISA is pointless in my opinion, and so is having multiple accounts. One account for my stocks and shares ISA is good enough, easy to manage and monitor and reduces my trading costs. Each to their own.

 

[businessor]

Thanks, but what I need to understand is the 20k allowance, what it refers to?

Does that mean that I can deposit only 20k per year in one or more ISAs in total? And does that mean that let's say after 5 years I will get the interest from the 100k deposit totally tax free? Or only the interest from 20k deposit?

 

[japancool]

Thanks, but what I need to understand is the 20k allowance, what it refers to?

Does that mean that I can deposit only 20k per year in one or more ISAs in total? And does that mean that let's say after 5 years I will get the interest from the 100k deposit totally tax free? Or only the interest from 20k deposit?

A cash isa is the same as a savings account, except there's a limit on how much you can pay in per year, which is your allowance, and the fact that interest is tax free.

 

[pentel]

Does that mean that I can deposit only 20k per year in one or more ISAs in total? And does that mean that let's say after 5 years I will get the interest from the 100k deposit totally tax free? Or only the interest from 20k deposit?

You will get interest tax free every year so year 1 interest on 20k tax free, year 2 interest on 40k +the interest from year 1, year 3 interest on 60k +the interest from years 1 & 2....... year 5 interest on 100k + the interest from years 1-4.

 

[macScot]

Thanks, but what I need to understand is the 20k allowance, what it refers to?

Does that mean that I can deposit only 20k per year in one or more ISAs in total? And does that mean that let's say after 5 years I will get the interest from the 100k deposit totally tax free? Or only the interest from 20k deposit?

You can put money into one of each kind of ISA each tax year.

So if it's cash ISA, you can only open one account in a tax year, and the total limit you have to put into that account for the year is £20k.

The following tax year, you can open another account of up to £20k, so this could take your cash ISA account to £40k in 2 years + any interest earned. You can draw out cash when needed but you cannot put it back in if it takes you above the £20k annual limit.
The account could be with the same company you already have your account with or it could be with another. But you cannot open 2 or more accounts with different companies in the same tax year.

The interest you earn is tax-free.

The same applies to stocks and shares ISA. Dividends earned or capital gains when you sell the stock at a profit are tax-free, The limit is that you can only deposit £20k into one stock and shares ISA account per tax year.

You have to keep up with tax rules as they can always change.

For more info read https://www.gov.uk/individual-savings-accounts

 

[macScot]

Note, to clarify on my previous note, the total ISA allowance is £20k per annum, so if you decide to invest in the different types at the same time e.g. cash and stocks & shares, you have to decide how to split the £20k between the types per tax year.

The gov.uk link shared has a couple of examples so definitely read that.