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What to do with cash in an isa

Investment discussion for beginners. Why you should invest your money, get help getting started
Jolead19
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Joined: February 27th, 2017, 9:21 pm

What to do with cash in an isa

#209682

Postby Jolead19 » March 23rd, 2019, 9:52 pm

Good evening

I have just opened a bank account that pays 1.5 % interest.

I notice my isa account pays 0.1% on the cash held in it.

I currently hold a largish amount of cash in my isa and wonder if there is an instrument that offers really minimal risk in the advent of a market downturn that would pay a yield nearer to the 1.5% I'm earning on savings.

Almost a high interest (highest today is 1.5%) easy access bank account within an isa.

I'm thinking money market funds, bond funds or anything else.

Basically I'm trying to inflation proof my cash in case it's in there for an extended period. I don't want to take it out for obvious reasons.

paulnumbers
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Re: What to do with cash in an isa

#209698

Postby paulnumbers » March 23rd, 2019, 11:43 pm

>I notice my isa account pays 0.1% on the cash held in it.

I assume you mean a S&S ISA?

There are cash funds, but the rates seem terrible.

https://www.fidelity.co.uk/factsheets/F ... urrencyId=

>Basically I'm trying to inflation proof my cash in case it's in there for an extended period. I don't want to take it out for obvious reasons.

Well, there are other options than taking it out. You can transfer the cash to a cash ISA, you can get 1.45% from Paragon Bank

https://www.moneysavingexpert.com/savin ... -cash-isa/

The problem may be that if you at then point in the future want to trade with it, there will be some delay moving it back to a S&S ISA. If Vanguard products are good enough for you, switch the ISA to Vanguard then withdraw the money and put it in your savings account. The Vanguard ISA is flexible, so long as you replace the cash by the end of the tax year, you don't lose the allowance. Obviously don't try and do this immediately, but from the 6th April it wouldn't be a terrible move.

Here is a guide to flexible ISA's https://www.moneysavingexpert.com/savin ... ible-ISAs/

Backache
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Re: What to do with cash in an isa

#209796

Postby Backache » March 24th, 2019, 1:45 pm

Jolead19 wrote:Good evening

I have just opened a bank account that pays 1.5 % interest.

I notice my isa account pays 0.1% on the cash held in it.

I currently hold a largish amount of cash in my isa and wonder if there is an instrument that offers really minimal risk in the advent of a market downturn that would pay a yield nearer to the 1.5% I'm earning on savings.

Almost a high interest (highest today is 1.5%) easy access bank account within an isa.

I'm thinking money market funds, bond funds or anything else.

Basically I'm trying to inflation proof my cash in case it's in there for an extended period. I don't want to take it out for obvious reasons.

I don't think there is a really safe way of inflation proofing cash , there are negative real interest rates at the moment. A short term bond fund should offer lowish volatility but even then a sharp spike in interest rates would hit it.
https://www.vanguardinvestor.co.uk/inve ... ion-shares
is one. I actually think that if you want to hold cash you just have to accept that inflation is a risk to it and look at other investments to protect against inflation accepting that they have other risks.

tjh290633
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Re: What to do with cash in an isa

#209799

Postby tjh290633 » March 24th, 2019, 2:00 pm

In my view interest bearing deposits and sticks are useless for protection from inflation. They are, of course, useful as reserve funds and a source of ready cash without resorting to borrowing. Given enough time, equities will outpace inflation by a considerable margin. Not only the capital value but the dividend income will do that.

We all know that equity values can rise and fall, but dividends are much more stable. Indeed some investment trusts have a history of over 50 years of rising dividends. ITs also tend to suffer less at times if market turbulence, compared with individual shares.

If I were trying to inflation proof my savings, ITs would be direction in which I would go. I would still have a healthy cash reserve.

TJH

Jolead19
Posts: 3
Joined: February 27th, 2017, 9:21 pm

Re: What to do with cash in an isa

#209904

Postby Jolead19 » March 24th, 2019, 9:52 pm

Ok Guys, appreciate your answers...

melonfool
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Re: What to do with cash in an isa

#209920

Postby melonfool » March 24th, 2019, 10:33 pm

Assuming you have money to save each month I would:

1) open as many regular savers as you can afford and get opened (some need current accounts attached and have various requirements - I have Nationwide, First Direct and HSBC currently - all on 5%)
I'd open them on different months so they end on different months. I also have £1,500 in a TSB account that pays 5% on £1,500 only, you have to transfer in £500pm but I transfer it straight back out again.
I am aware that the 5% is not what you get on the whole sum for a regular saver by the way, but it's a decent amount of inflation proofing for me. Santander also have one that's 3%.
2) as I save however much each month into those, move an equivalent amount of cash from my ISA into stocks/bonds within an ISA
3) if there isn't enough headroom in those, move the cash to a cash ISA - Santander now have a 1.3% one, or 1.9% with some accounts.

Remember you can earn up to £1k pa tax free in interest (if you are a lower rate tax payer, £500 if not) outside an ISA so you may as well take advantage of that.

This helps you keep your cash liquidity while still using the ISA allowance you have so far.

Mel


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