To wonder what the point of trying to save is?

[CircusofPuffins]

Lots of reports today that Rachel Reeves is, as been rumoured for quite a while, due to announce plans to limit the amount that we can save in cash ISAs

https://www.ft.com/content/01371783-0399-412b-82be-c87f3a60ff8c

As someone who has the majority of my life savings in ISAs, I find this really objectionable. Apparently, this has lobbied for by people in the city, wanting more of us to invest in stocks and shares ISAs instead. Despite them ignoring the simple fact that most people won't understand stocks and shares ISAs, or have the necessary time/effort to get clued up on it.

I can't help but feel quite despondent about this, and wonder what really is the point of even bothering to save these days? The last few years I've been trying to be as careful as possible with money, limiting spending on luxuries and putting a decent chunk of my paycheque aside each month to hopefully, one day, be able to buy a house.

But now it seems like labour are targeting savers? And what really is the point of this massive house-building programme they supposedly want to accomplish if the vast majority of us will probably never be able to save enough to buy one in the first place?

What a depressing country this is increasingly becoming to live in...

You’re slightly conflating two things (which isn’t surprising given their poor/slightly inaccurate names).

The stocks and shares ISA (really the ‘investment ISA’) enables you to invest in ‘securities’ - collectively stocks, indices, treasury bonds and corporate bonds. The point of the ISA is that it is a tax free wrapper so you do not pay tax on the income/dividends from bonds/stocks or capital gains.

A treasury bond or other bond as per NS&I can, as you say, offer attractive returns for lower risk vs stocks, if that’s your preference. But they are not tax efficient instruments and the coupon / interest is taxable.

SO, if you want a bond investment it is likely that most efficient way of accessing is thru the ‘stocks and shares ISA wrapper’ up to your annual allowance limit.

Anyone putting their money into cash ISAs if their horizon is 5+ years will not be optimizing their returns.

it doesn’t need in-depth knowledge of investing. MSE, Vanguard, Hargreaves Lansdown etc have simple guides. There are trackers that track various indices - UK, Europe, the World. Spread your ISAs among these and forget about them for 5, 10, 20 years… or however long you are from your retirement.

If you are unsure of S&S ISAs, just go for a tracker, everyone tells me a global tracker fund is best, so that you don't lose out because one area goes down.

But if everyone does that how does it increase investing in UK plc?

My DH had a s and s ISA years ago. After 5 years it was worth less than what he paid in. And yes I know that long term it would probably have made money but when you need your money, you need your money. We now wouldn't touch a s and s ISA with a barge pole.

I am however going to get 18 y o DD to start a LISA and I'll pay £4000 into it for her.

I thought that the government would want people to save so that when they need a care home they'll be self funders and also partially funding other people who would otherwise be being paid for by taxpayers.

Wouldn't it be lovely to one day have a government that thinks more than 5 minutes ahead?

But what if...and consider this...some of us don't want to invest or bother with S&S ISAs (for whatever reason) at all?

Cash ISAs are safe and you know where you stand with them - which is why I personally prefer them over something unknown with S&S.

It seems like with this change, the government has given us two options, neither of them particularly appealing. Put your money in something that you may not fully understand and probably won't see any benefit from for the foreseeable, or risk paying extra on the interest on your savings that you've worked hard to build up over however many years.

Okay….. so consider sticking your cash in your pension instead. Though it will of course be invested in S&S… but at least you won’t have to do any homework.

Individuals saving cash makes sense for them (while inflation is under control) but is mostly bad for the economy as a whole. Good that people can withstand life events but really bad to have money taken out of circulation. Money is only really doing its job if it’s moving. So yes, it makes sense that the gov want to reduce cash savings. Holding about 6 months expenditure is often seen as the sweet spot.

Optimising returns requires work and knowldge

some people are happy with a little less than optimal for a lot less stress in their lives

some people want to trade maximal returns for security- the very poor and the very rich don’t value security the same way ( but for different reasons )
some people are not obsessed by getting more money

some people actually think the whole stock market is a bad thing - look how our lives are impact by shock market crashes that are based on nothing more than everyone getting jumpy at the same time - it’s not based on the value companies being to society . and so they want to interact with it as little as possible. Look how shareholders get money for nothing and sulk and destroy healthy profit making businesses for not making enough profit

If I was you I’d try to understand what your hard earned cash is invested in, why your financial adviser recommended a fund that has produced such poor returns, how much of your hard earned cash he or she has earned in return for their advice and whether you might be able to do better by learning about investments & making your own choices.

We desperately need more financial education in this country so that people don’t suffer such poor returns while financial advisers feather their nests.

Cash ISAs are only “safe” if the interest rate is higher than inflation. Otherwise, you are losing money each year.

If you are able to save then yes some should be in cash for short term use/emergencies, but long term savings are better invested.

It’s too risky to do that for 5 years - usually you want 10. Also, some people don’t want to take any risk and would rather forgo the opportunity for more money in order for certainty.
fundamentally it is a reduction of choice.

You didn't earn the interest, that's why you'll be taxed on it.

I'm not investment expert but there's no conflation here (although apologies I should have said "treasury bills" not "bonds"). I currently have UK treasury bills through an ISA (Freetrade is the provider), so it can be a tax efficient investment IF done under the umbrella of an ISA. See here for details: https://community.freetrade.io/t/tax-wrapped-uk-treasury-bills-are-here/72346

My issue is how they will be treated in the future, as cash or stocks and shares. As to me, they aren't cash but equally I can see why Reeves would want them to be treated as cash (or at least not eligible for investment as part of a stocks and shares ISA).

Fortunately I'm at the stage in life where I am spending my ISAs rather than saving into new ones, I would be a bit fed up if I was a bit younger though and still saving.

I don’t really see the point of cash ISAs personally - not fussed about this change.

I use stocks and shares ISAs and invest in tracker funds. I keep cash as an emergency fund only, not as an investment.

Interested why people are putting more than £10k in cash ISAs annually? Are you all additional rate taxpayers?

Ah I’ve now understood you, sorry. I thought you were comparing a treasury bond (not in the ISA wrapper) to the cash ISA.

Bonds/treasuries/t-bills are currently treated under the S&S ISA wrapper. Which, as I said, is a bit mislabeled as the investment choices within it include more than just stocks and shares, including t-bills, bonds, shares, indices, and indeed cash (plus others).

There has been no proposal to change the eligible investment options within the S&S ISA as far as I can see.

Thanks - so in conclusion you think that (subject to a statement in the future to the contrary) people can continue buying t-bills under a S&S ISA? Very helpful if so!

Yes @TheLette it certainly seems to be the case. There hasn’t been any remark on changes to eligible securities - and I’ve followed this a fair bit.

It also appears that it would be a big help if the government renamed the S&S ISA (to the ‘Investment ISA’ or something), given this flexibility! I think a lot of people would find the bonds in this ISA wrapper quite compelling for their own risk-return preferences.

Totally get it — feels like you're penalised whether you spend or save. Not everyone wants to gamble their future on the stock market. Some of us just want a bit of security, and it shouldn’t feel like a luxury.

Really recommend this week’s The Rest is Money podcast which talks about the lack of understanding around savings.

This article on the realities of stock market “crashes” is worth reading.

TLDR - there have been 8 major crashes between 1974 and 2008. If you had invested $1,000 just before the 74/75 crash it would still have been worth $89,790 by 2015 despite all those crashes.

https://jlcollinsnh.com/2012/04/15/stocks-part-1-theres-a-major-market-crash-coming-and-dr-lo-cant-save-you/

I have invested on behalf of my family (myself, husband and three children) for the whole of our relationship/their lives and all my adult life. I am now teaching our two oldest children as they are of an age to know and having maxed out their ISA’s and pensions they need to know what to do. The middle class save and the wealthy invest.

@PumpkinSparkleFairy nor so I. All our ISA’s are for passive income at retirement. And the most joyous thing? The govt can’t tax any of us on any of it

You’ve not done any work to get the interest other than be alive at a time when interest it being paid on credit balances. 5 years ago this would have been an irrelevant argument as interest rates were pitiful and the tax even on high savings balances was negligible. Were you demanding then that someone should be paying you for being such a good saver in the past?

My job limits investments - I’m not allowed to invest in approximately 25% of listed companies around the globe. My portfolio options are therefore really limited (I’m at 2% return over 5 years invested at the moment in my S&S ISA). Cash ISA is therefore the sensible option for my husband, so we put £20k in that and £10k ish into the S&S ISA (as I keep telling myself that markets will eventually win out on long term investments, even if it’s just subsection of the market).

I expect anyone saying for a house deposit/early mortgage repayment/imminent retirement may also prefer a cash ISA over S&S given interest rates are reasonable at the moment and they won’t have sufficient time in the market to weather storms.

All that said, I’m ambivalent about/mildly supportive of the proposed changes.

I'm an advanced rate taxpayer (in Scotland so different terminology for tax bands and higher taxation than England)

There's been some very odd comments for posters claiming that better off people get better savings rates - actually the level of interest you can earn without it being taxed (anything other than an ISA or premium bonds I believe) is determined by your income. Someone on a very low income who hasn't used their personal allowance can get up to £5000 interest tax free (seems an unlikely scenario TBH).

I can only earn £500 interest tax free - so in a non-ISA product at 4% interest annually if I had more than £12500 saved I'd be taxed at 40% on any interest over the £500 limit. It quickly has a big impact on the return on investment for me.

Almost a third of my salary already goes in tax - which I don't mind, although the government waste on incompetent vanity projects in Scotland is hugely frustrating, and we definitely don't get better services despite higher gov spending per head of population.

I'm also risk adverse by nature - sure I might get a slightly lower return in a cash ISA or premium bonds but that's fine for my peace of mind. I'm reading work articles on holiday to keep up with my CPD (and checking my emails), researching the stock market is not going to make it onto my to do list.