ISAs

[Rossiter]

Am looking for some advice about ISAs please.

I have been caring full-time for a family member for the past 12 years and have been living off the interest I earn from my savings. I do not earn enough to pay tax.

I have opened ISAs most years during the above period, some years with the maximum investment and other years with a lot less, depending on my finances at the time. I have several ISAs with different banks.

Today I have received a letter from Nationwide Building Society asking if I want to re-invest my maturing ISA. The interest rate they will pay on this is 0.03%.

Over the years I've been lazy and just automatically re-invested but I'm now thinking is there any point, especially in my circumstances, with having ISAs as the interest rate they all offer is so low. Would I be better off withdrawing all my ISAs when they all eventually mature and re-investing in, for instance, fixed rate bonds which pay a better rate?

www.marcus.co.uk/uk/en/savings/cash-isa

I've just increased your income by 20 times!

Seriously, whilst rates are rubbish everywhere there are still some options much better than others. Have a look around and see what else you can get - I'd always start with the best buys listed on MoneySavingExpert

A bit more information is needed. Such as your age, whether this arrangement is expected to continue further beyond the short term, how much money we're talking about, whether you are actually living off the interest (unlikely unless you have millions) or do you need to use the capital in the short term?

It might be worth splitting the money between cash products and investments, bearing in mind that you want to avoid drawing money during a market downturn, as this crystallises the loss. But investments are likely to produce more growth than cash, ISA or not over the medium to long term.

Another option, that is likely to at least match the market ISA if you can put money in there for a couple of years at least is premium bonds. You can put £50k in and the overall prize rate is 1% I think, but this is skewed towards larger prizes. Typically you'd expect maybe 0.9% on £50k. I don't have quite that much but over 2019-21, I got 2%, 6% and 0.6% last year.

Would I be better off withdrawing all my ISAs when they all eventually mature and re-investing in, for instance, fixed rate bonds which pay a better rate?

No, shop around for better ISA interest rates first. Coventry Building Society is a good place to start, currently offering from 1% to 1.75% depending on how many years you fix for.
www.coventrybuildingsociety.co.uk/member/savings/cash-isas.html

Fixed rates bonds don't necessarily offer more than ISAs (decent ones anyway, not the 0.01% accounts).

The most important thing to remember is that you can't withdraw money from fixed rate bonds before maturity, whereas ISAs have to provide an option to withdraw money (albeit by forfeiting some of the interest due). So if you need money for an emergency you can withdraw it from an ISA but not from a fixed rate bond.