Best Cash ISA vs Budget 2015 Scrapping Tax on Savings Interest on First £1,000
Personal_Finance / ISA's Mar 20, 2015 - 10:27 AM GMTBy: Nadeem_Walayat
It's that time of the year again when many savers will be busy rushing to capitalise on their use it or lose it £15k cash ISA annual allowance, though having been raised in July 2014 from £5.5k to £15k does not make today's exercise as big a deal for most savers. Still up until this week it had been a case of ensuring cash is deposited in tax free ISA's than in taxed deposit accounts. However, now everything may be changing for many if not most savers following the Budget 2015 announcement to scrap tax on the first £1k of interest earned which with today's abysmal typical interest rates of 1.5% covers savings pots of as much as £65,000!
Tax on savings on the first £1,000 of interest earned will be scrapped for 95% of savers from April 2016 (£1000 for basic rate, £500 for higher rate tax payers). This now throws into doubt whether people should obsess over the tax free cash ISA accounts, especially as Britain's banking crime syndicate consistently pays LESS on the SAME term ISA accounts then none ISA accounts which in many instances tends to wholly negate the tax free benefits of Cash ISA's.
Another major change is that cash ISA savers from April 2016 will be able to withdraw and deposit funds in the same tax year without counting towards their annual ISA limits. The existing rule is that once you withdraw from a Cash ISA you cannot then then re-deposit into it. The £15,000 limit refers to total deposited, and not maximum account balance. So if you deposit £15,000, and withdraw £1000, then you cannot re-deposit that £1000 in the same tax year as you have used up your £15,000 deposit limit. This change will make current tax year ISA's very flexible so ISA's more appealing.
Then of course there is the Help to Buy ISA, which effectively is an election bribe of £3,000 for first time buyers, £6k for couples.
Britain's savers have suffered hugely following the crash in interest rates from October 2008 to March 2009 since when the base rate has remained at 0.5%, and has been followed by many instances of what amounts to fraud on savers of an artificial highly manipulated UK interest rates market as the banking crime syndicate continues to suckle on the teat of the Bank of England through a myriad of schemes that results in effectively providing the banks with unlimited funding that has resulted in the collapse of savings interest rates where the present phase began in May 2012 and has been kept at sub real inflation rates of systemic theft.
The table below illustrates the cash ISA rates offered by apparently often reported on as best buy accounts of the Halifax mega-bank that in reality crashed in response to the Bank of England's Funding for Lending Scheme that started in July 2012.
| Halifax ISA's | May 2012 | Sept 2012 | Nov 2012 | Mar 2013 | May 2013 | July 2013 | Mar 2014 | June 2014 | Mar 2015 | % Cut |
|---|---|---|---|---|---|---|---|---|---|---|
| Instant Access | 3% |
2.75% |
2.35% |
1.75% |
1.35% | 1.35% | 1.5% | 1.30% | 1.05% | -65% |
| 1 Year Fix | 2.25% |
2.05% |
2.05% |
1.75% | 1.75% | 1.65% | 1.5% | 1.40% | -38% | |
| 2 Year Fix | 4.00% |
3.25% |
2.25% |
2.5% |
2.10% | 2.10% | 2.05% | 1.8% | 1.65% | -59% |
| 3 Year Fix | 4.25% |
3.75% |
2.35% |
3.00% |
2.25% | 2.25% | 2.25% | 2% | 1.75% | -59% |
| 4 Year Fix | 4.35% |
3.80% |
2.40% |
3.05% |
2.30% | 2.30% | 2.40% | 2.10% | 1.85% | -57% |
| 5 Year Fix | 4.50% |
4.15% |
2.60% |
3.10% |
2.35% | 2.35% | 2.5% | 2.20% | 2.00% | -55% |
The table shows that the tax payer bailed out Halifax continues to across the board pay abysmally poor rates of interest that are far below the official UK RPI Inflation rate of 2.24% (average of the last 12 months).
Current Best Cash ISA
In my opinion the current best ISA's are the 2 year fixed Cash ISA's from Clydesdale / Yorkshire bank paying 2.10%, For those wishing to gamble on rates being held low for 5 years then there is the United Trust 5 year fixed rate ISA paying 2.75% (transfer ins only). As for instant access the the NS&I and Post Office pay 1.5% (includes 0.85% 1 year bonus).
What to do ?
In my opinion savers either continue to effectively hand over their hard earned cash to the banks to systematically siphon off through persistent loss of purchasing power or they look at alternative asset classes such as the UK housing market that is currently trundling along at an average annual percentage rate of FIVE times the pittance that the likes of Halifax pays as covered at length in my UK Housing Market Ebook available for FREE DOWNLOAD (Only requirement is a valid email address).
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2. U.K. Housing Market Analysis and House Prices Forecast 2014-2018 - 107 pages
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A selection of 10 historic articles of analysis to illustrate the process of analysis during key stages of the housing markets trend from the euphoric bubble high, to a state of denial as house prices entered a literal free fall, to the depths of depression and then emergence of the embryonic bull market during 2012 that gave birth to the bull market proper of 2013.
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Summary of ISA Rules & Benefits
- The ISA accounts are TAX FREE, and do not have to be entered onto any tax returns. The equivalent taxable return on a 3% cash ISA for standard rate tax payers is 3.6%. For higher rate tax payers it is 4.2%.
- The income from tax ISA's does not count against many mean tested benefits such as Tax Credits.
- The Allowance for 2014-15 is £15,000, and you get to choose the split between cash and stocks and shares.
- You can only open ONE New cash ISA per tax year, and you can add new monies to One Cash ISA per tax year (see transfers). Similarly you can open only one new Shares ISA per tax year.
- You do not have to open a Cash ISA with your existing provider, i.e. you can open an account at different providers every year.
- Most providers allow for transfers in. And ALL should allow you to transfer out.
- Once you withdraw from a Cash ISA you cannot then then re-deposit into. The £15,000 limit refers to total deposited, and not maximum account balance. So if you deposit £15,000, and withdraw £1000, then you cannot re-deposit that £1000 in the same tax year as you have used up your £15,000 deposit limit.
- To maximize tax free interest earned, it is best to open your account at the start of the tax year.
- The Financial Services Compensation Scheme (FSCS) guarantees the first £85,000 (Euro 100,000) per person, per banking licence . Those with sizable savings that total more than £85,000 should ensure that their institutions really are separate, especially given the banking crisis forced mergers.
- There is the facility to transfer Cash ISA monies into Shares ISA's and visa versa.
- Next years ISA allowance (2015-16) will be increased to £15,240.
Source and comments: http://www.marketoracle.co.uk/Article49915.html
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By Nadeem Walayat
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Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.
Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
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