Savings and Investments thread

Huskaris said:

I think the idea of attaching cash ISAs is really poor to be honest. And I say this as someone with all of my allowance in S&S. 

We need to encourage people to save, if they want to take risks, great, if they don't, great. Let people save, the banks invest the money it's not like it's sitting there gathering dust. 

Whilst I agree with the sentiment, the people who need encouragement to save better are unlikely to exceed the tax-free interest bracket they'd make in a high interest savings account (£1000 for 20% tax payers and £500 for 40% tax payers). I don't think they'd be impacted as heavily by such a change. 

Personally I don't think its a terrible situation as the alternative S&S ISA route is likely to lead to better gains anyway - but it will be a change in mindset (and education) for those like my parents who just know the simplicity of Cash ISAs. 

CafcWest said:

Can anyone explain why you would leave it towards the end of the tax year to open an ISA?  Seen quite a few on-line adverts and heard radio commercials for ISAs.  I always (if I have the money in a normal savings account) open an ISA at the start of the tax year so that the interest earned is tax free...is there any advantage to leaving it until the end of the tax year?

As well as a reminder, often people get a bonus in March payday. But no benefit to holding out.

£4k is the LISA limit still isn’t it

Presume many will do that as low risk 

Southendaddick said:

£4k is the LISA limit still isn’t it

Presume many will do that as low risk 

Correct, you also get a 25% government bonus. You can't open one if you're over 40 and can't pay in if you're over 50. If you withdraw before 60, unless buying a first home, you have a 25% penalty. So if you aren't planning to sit on it until 60 you'll still take advantage of the earnings from the bonuses. 

I would recommend anyone under 40 to get one. 

I was 39 when the LISA came out so have put the £4k in every year (stocks and shares) 

Relatively low risk and a nice little pension top up 

Friend Or Defoe said:

golfaddick said:

Friend Or Defoe said:

Southendaddick said:

£4k is the LISA limit still isn’t it

Presume many will do that as low risk 

Correct, you also get a 25% government bonus. You can't open one if you're over 40 and can't pay in if you're over 50. If you withdraw before 60, unless buying a first home, you have a 25% penalty. So if you aren't planning to sit on it until 60 you'll still take advantage of the earnings from the bonuses. 

I would recommend anyone under 40 to get one. 

Ah, but this is where the vagaries of mathematics come in. 

You might get a 25% bonus on the money going in but the 25% deduction on the way out is more than what you got going in.....so you are in fact worse off. 

£1000 goes in   -  £1250 in credited to your account. 

Shut it down and the £1250 has 25% deducted......leaving you with just £937.50. 

Martin Lewis has been on about this for years. 

My statement said advantage of the earnings from the bonus, which you've used as 0! If it made 10% in a year and you stupidity withdraw it all after a single year you would have earnt £31.25. The aim is to sit on it until 60 and not take the hit. As Southend said it's a good top up to a pension.

In my professional opinion they are neither one thing nor another. They haven't got the flexibility of an ISA and you have to wait until 60 (not 55/57) like a pension before you can access the funds if not buying a property. And then in addition you have the draconian penalties upon withdrawal. 

golfaddick said:

Friend Or Defoe said:

Southendaddick said:

£4k is the LISA limit still isn’t it

Presume many will do that as low risk 

Correct, you also get a 25% government bonus. You can't open one if you're over 40 and can't pay in if you're over 50. If you withdraw before 60, unless buying a first home, you have a 25% penalty. So if you aren't planning to sit on it until 60 you'll still take advantage of the earnings from the bonuses. 

I would recommend anyone under 40 to get one. 

Ah, but this is where the vagaries of mathematics come in. 

You might get a 25% bonus on the money going in but the 25% deduction on the way out is more than what you got going in.....so you are in fact worse off. 

£1000 goes in   -  £1250 in credited to your account. 

Shut it down and the £1250 has 25% deducted......leaving you with just £937.50. 

Martin Lewis has been on about this for years. 

Yep my son is about to cash his in and take a loss as he won’t be buying with a mortgage so can’t use it

Friend Or Defoe said:

golfaddick said:

Friend Or Defoe said:

Southendaddick said:

£4k is the LISA limit still isn’t it

Presume many will do that as low risk 

Correct, you also get a 25% government bonus. You can't open one if you're over 40 and can't pay in if you're over 50. If you withdraw before 60, unless buying a first home, you have a 25% penalty. So if you aren't planning to sit on it until 60 you'll still take advantage of the earnings from the bonuses. 

I would recommend anyone under 40 to get one. 

Ah, but this is where the vagaries of mathematics come in. 

You might get a 25% bonus on the money going in but the 25% deduction on the way out is more than what you got going in.....so you are in fact worse off. 

£1000 goes in   -  £1250 in credited to your account. 

Shut it down and the £1250 has 25% deducted......leaving you with just £937.50. 

Martin Lewis has been on about this for years. 

My statement said advantage of the earnings from the bonus, which you've used as 0! If it made 10% in a year and you stupidity withdraw it all after a single year you would have earnt £31.25. The aim is to sit on it until 60 and not take the hit. As Southend said it's a good top up to a pension.

That’s not correct, you get nothing of the earnings on the bonus if you cash in and you also some of the earnings on what you had!

pay in £4K which becomes 5k. Make 10% becomes £5.5k. Cash in, lose 25% leaves you 4,125. Whereas 4K in a normal ISA that makes 10% gives you £4,400.

Friend Or Defoe said:

Rob7Lee said:

Friend Or Defoe said:

golfaddick said:

Friend Or Defoe said:

Southendaddick said:

£4k is the LISA limit still isn’t it

Presume many will do that as low risk 

Correct, you also get a 25% government bonus. You can't open one if you're over 40 and can't pay in if you're over 50. If you withdraw before 60, unless buying a first home, you have a 25% penalty. So if you aren't planning to sit on it until 60 you'll still take advantage of the earnings from the bonuses. 

I would recommend anyone under 40 to get one. 

Ah, but this is where the vagaries of mathematics come in. 

You might get a 25% bonus on the money going in but the 25% deduction on the way out is more than what you got going in.....so you are in fact worse off. 

£1000 goes in   -  £1250 in credited to your account. 

Shut it down and the £1250 has 25% deducted......leaving you with just £937.50. 

Martin Lewis has been on about this for years. 

My statement said advantage of the earnings from the bonus, which you've used as 0! If it made 10% in a year and you stupidity withdraw it all after a single year you would have earnt £31.25. The aim is to sit on it until 60 and not take the hit. As Southend said it's a good top up to a pension.

That’s not correct, you get nothing of the earnings on the bonus if you cash in and you also some of the earnings on what you had!

pay in £4K which becomes 5k. Make 10% becomes £5.5k. Cash in, lose 25% leaves you 4,125. Whereas 4K in a normal ISA that makes 10% gives you £4,400.

That's the same as what i said. £1000 deposit gives £31.25. £31.25 x 4 = £125. 

Think you are misunderstanding the math.

The £125 isn't the profit on the governments £1,000 (based on 10%) which you said:

"So if you aren't planning to sit on it until 60 you'll still take advantage of the earnings from the bonuses."

You get no benefit of the governments money or money made on that, to the contrary you lose all of that £125 and a further £275.

In this example (£4k in, £1k government bonus and £500 profit @ 10%) It's not the profit in total you get to keep on your £4k - i.e. you actually only keep 3.125% (£125), the Government get back £1,375, so they make 37.5%!!

Put in: £4,000
Gov in: £1,000
10% Profit £500

Total £5,500.

Cash in

You get £4,125 (75% of £5,500) 3.125% return
Gov get £1,375 (25% of £5,500) 37.5% return.

To show the point, conversely put £4k in an ISA and make 10% you walk away with £400 profit. NOT £125 as the government aren't getting £275 of your profit!

As has been advertised and mentioned many many times, cashing in loses you 6.25%.

From money saving expert:

• Withdrawals have a 25% penalty, equivalent to a loss of just over 6%. At first glance the fact you've had a 25% bonus added and then a 25% penalty would seem to leave you back where you started. Yet unfortunately the maths doesn't work like that...
  

  Imagine you saved £1,000 and so got a £250 bonus, you'll have £1,250 total (ignoring interest, for ease). If you then withdrew it and closed the account, the 25% penalty would be £312.50. So you'd get £937.50 back.

  In effect, the maths means that withdrawing for reasons other than buying your first home or retirement loses you 6.25% of what you contributed.

Rob7Lee said:

Friend Or Defoe said:

Rob7Lee said:

Friend Or Defoe said:

golfaddick said:

Friend Or Defoe said:

Southendaddick said:

£4k is the LISA limit still isn’t it

Presume many will do that as low risk 

Correct, you also get a 25% government bonus. You can't open one if you're over 40 and can't pay in if you're over 50. If you withdraw before 60, unless buying a first home, you have a 25% penalty. So if you aren't planning to sit on it until 60 you'll still take advantage of the earnings from the bonuses. 

I would recommend anyone under 40 to get one. 

Ah, but this is where the vagaries of mathematics come in. 

You might get a 25% bonus on the money going in but the 25% deduction on the way out is more than what you got going in.....so you are in fact worse off. 

£1000 goes in   -  £1250 in credited to your account. 

Shut it down and the £1250 has 25% deducted......leaving you with just £937.50. 

Martin Lewis has been on about this for years. 

My statement said advantage of the earnings from the bonus, which you've used as 0! If it made 10% in a year and you stupidity withdraw it all after a single year you would have earnt £31.25. The aim is to sit on it until 60 and not take the hit. As Southend said it's a good top up to a pension.

That’s not correct, you get nothing of the earnings on the bonus if you cash in and you also some of the earnings on what you had!

pay in £4K which becomes 5k. Make 10% becomes £5.5k. Cash in, lose 25% leaves you 4,125. Whereas 4K in a normal ISA that makes 10% gives you £4,400.

That's the same as what i said. £1000 deposit gives £31.25. £31.25 x 4 = £125. 

Think you are misunderstanding the math.

The £125 isn't the profit on the governments £1,000 (based on 10%) which you said:

"So if you aren't planning to sit on it until 60 you'll still take advantage of the earnings from the bonuses."

You get no benefit of the governments money or money made on that, to the contrary you lose all of that £125 and a further £275.

In this example (£4k in, £1k government bonus and £500 profit @ 10%) It's not the profit in total you get to keep on your £4k - i.e. you actually only keep 3.125% (£125), the Government get back £1,375, so they make 37.5%!!

Put in: £4,000
Gov in: £1,000
10% Profit £500

Total £5,500.

Cash in

You get £4,125 (75% of £5,500) 3.125% return
Gov get £1,375 (25% of £5,500) 37.5% return.

To show the point, conversely put £4k in an ISA and make 10% you walk away with £400 profit. NOT £125 as the government aren't getting £275 of your profit!

As has been advertised and mentioned many many times, cashing in loses you 6.25%.

From money saving expert:

• Withdrawals have a 25% penalty, equivalent to a loss of just over 6%. At first glance the fact you've had a 25% bonus added and then a 25% penalty would seem to leave you back where you started. Yet unfortunately the maths doesn't work like that...
  

  Imagine you saved £1,000 and so got a £250 bonus, you'll have £1,250 total (ignoring interest, for ease). If you then withdrew it and closed the account, the 25% penalty would be £312.50. So you'd get £937.50 back.

  In effect, the maths means that withdrawing for reasons other than buying your first home or retirement loses you 6.25% of what you contributed.

We were using £1k in which gives £31.25 on a 10% gain. Funny enough i realise £100 is more than £31.25.  

Friend Or Defoe said:

Rob7Lee said:

Friend Or Defoe said:

Rob7Lee said:

Friend Or Defoe said:

golfaddick said:

Friend Or Defoe said:

Southendaddick said:

£4k is the LISA limit still isn’t it

Presume many will do that as low risk 

Correct, you also get a 25% government bonus. You can't open one if you're over 40 and can't pay in if you're over 50. If you withdraw before 60, unless buying a first home, you have a 25% penalty. So if you aren't planning to sit on it until 60 you'll still take advantage of the earnings from the bonuses. 

I would recommend anyone under 40 to get one. 

Ah, but this is where the vagaries of mathematics come in. 

You might get a 25% bonus on the money going in but the 25% deduction on the way out is more than what you got going in.....so you are in fact worse off. 

£1000 goes in   -  £1250 in credited to your account. 

Shut it down and the £1250 has 25% deducted......leaving you with just £937.50. 

Martin Lewis has been on about this for years. 

My statement said advantage of the earnings from the bonus, which you've used as 0! If it made 10% in a year and you stupidity withdraw it all after a single year you would have earnt £31.25. The aim is to sit on it until 60 and not take the hit. As Southend said it's a good top up to a pension.

That’s not correct, you get nothing of the earnings on the bonus if you cash in and you also some of the earnings on what you had!

pay in £4K which becomes 5k. Make 10% becomes £5.5k. Cash in, lose 25% leaves you 4,125. Whereas 4K in a normal ISA that makes 10% gives you £4,400.

That's the same as what i said. £1000 deposit gives £31.25. £31.25 x 4 = £125. 

Think you are misunderstanding the math.

The £125 isn't the profit on the governments £1,000 (based on 10%) which you said:

"So if you aren't planning to sit on it until 60 you'll still take advantage of the earnings from the bonuses."

You get no benefit of the governments money or money made on that, to the contrary you lose all of that £125 and a further £275.

In this example (£4k in, £1k government bonus and £500 profit @ 10%) It's not the profit in total you get to keep on your £4k - i.e. you actually only keep 3.125% (£125), the Government get back £1,375, so they make 37.5%!!

Put in: £4,000
Gov in: £1,000
10% Profit £500

Total £5,500.

Cash in

You get £4,125 (75% of £5,500) 3.125% return
Gov get £1,375 (25% of £5,500) 37.5% return.

To show the point, conversely put £4k in an ISA and make 10% you walk away with £400 profit. NOT £125 as the government aren't getting £275 of your profit!

As has been advertised and mentioned many many times, cashing in loses you 6.25%.

From money saving expert:

• Withdrawals have a 25% penalty, equivalent to a loss of just over 6%. At first glance the fact you've had a 25% bonus added and then a 25% penalty would seem to leave you back where you started. Yet unfortunately the maths doesn't work like that...
  

  Imagine you saved £1,000 and so got a £250 bonus, you'll have £1,250 total (ignoring interest, for ease). If you then withdrew it and closed the account, the 25% penalty would be £312.50. So you'd get £937.50 back.

  In effect, the maths means that withdrawing for reasons other than buying your first home or retirement loses you 6.25% of what you contributed.

We were using £1k in which gives £31.25 on a 10% gain. Funny enough i realise £100 is more than £31.25.  

It doesn't. 

"So if you aren't planning to sit on it until 60 you'll still take advantage of the earnings from the bonuses" - that is incorrect, you do not earn anything on the government's money if you cash in, you in fact also lose some of your own money.

Lets try the £1,000 then.

Put in: £1,000
Gov in: £250
10% Profit £125 (£100 on your £1k, £25 on Governments £250)

Total £1,375.

Cash in

You get £1,031.25 (75% of £1,375) 3.125% return
Gov get £343.75 (25% of £1,375) 37.5% return.

So you have kept no money of the governments £250 nor any of their £25 profit as you've given back £343.75 which is £68.75 of your own money and return.

In a nut shell, 100% + 25% = 125%, however then deduct 25% from the 125 and it's not back to 100, it's 93.75% which is why everyone states that by cashing in you lose 6.25%.

Does that help? Or maybe you can explain how the government put in £250 and make £25, yet you give them back that plus £68.75 means you've somehow made on the governments money!?!

valleynick66 said:

I do wonder why government has never corrected this anomaly. I can’t imagine it raises any significant sums for them - unless it does?

Doubt it's substantial but it will put people off of withdrawing it early.

valleynick66 said:

Friend Or Defoe said:

valleynick66 said:

I do wonder why government has never corrected this anomaly. I can’t imagine it raises any significant sums for them - unless it does?

Doubt it's substantial but it will put people off of withdrawing it early.

Yes I get the idea of incentive to get people to properly save but we are really discussing the  penal element of the calculation beyond losing the government ‘bonus’. 

Really feels like an unintended consequence that could be fixed. 

I think it is intended!

Friend Or Defoe said:

valleynick66 said:

Friend Or Defoe said:

valleynick66 said:

I do wonder why government has never corrected this anomaly. I can’t imagine it raises any significant sums for them - unless it does?

Doubt it's substantial but it will put people off of withdrawing it early.

Yes I get the idea of incentive to get people to properly save but we are really discussing the  penal element of the calculation beyond losing the government ‘bonus’. 

Really feels like an unintended consequence that could be fixed. 

I think it is intended!

If intended does it really pull in much cash ? And how many accounts are closed early as a percentage ?

Im not as sure it is intended and perhaps the number of accounts opened , volumes saved and percentage not cashed early are falling short of expectations?