AskAnna - 2024 roundup

#AskAnna 

Question: My partner has been very loyal to one high street bank as he says it makes life easier. I prefer to move my money around to get the best deals. Please could you settle this argument about who has the best approach?

Whilst I couldn’t possibly declare a victor in your argument as there are pros and cons to both sides, I would say that if you want your money to work as hard as possible and provide a real return, leaving all your savings with your high street bank is unlikely to be the best choice!

With your savings, opening new savings accounts and moving your cash is far simpler than it was. And if you keep an eye on a trusted website such as Savings Champion to find the best rates, this could be an easy way to earn extra money.

When you remember that the Bank of England’s base rate is currently 5%, it’s shocking to see that the high street banks main easy access accounts pay nowhere near this rate. Barclays, for example, is paying 1.66% AER on the first £10,000 in its Everyday Saver (this rate is dropping to 1.51% from 2nd December 2024), and if you have more than £10,000, the excess will earn just 1.16%. On the flip side you can still earn up to 5% if you pick one of the top rates available with lesser-known providers.

On a balance of £10,000, that’s a difference of earning £166 or £500 a year! You still have access to the money, and there is no increased risk – it’s simply that you are rewarded with effectively free money!

Some of the high street banks might offer you a higher rate on special accounts for existing customers, but normally these higher rates are restricted to a small balance and perhaps for a limited time. But it makes sense to take advantage if you can, but move any excess.

You can earn more if you are able to tie up some of your cash into a fixed rate bond or ISA, but once again the rates offered by the high street banks are far lower than the top rates available with other providers.
My mantra for savings is review, ditch and switch, if you are not being paid as much interest that you deserve.

Ultimately, it’s about balancing convenience with financial gain and agreeing on an approach that works for both of you. That way, you can enjoy the best of both worlds!

If you can illustrate a true benefit of switching, why would he not want to take the leap. 

28/9/24

Question: My wife and I are due to complete our house sale next month but are yet to find another property to buy, so are moving in with my brother to break the chain. It means that we will have an awful lot of money — about £370,000 — in cash while we search for and complete our own purchase, which could be as soon as three months

It makes so much sense to want to get a return on your money while you are looking for your new home and as you are going to need access to it in the short term, cash savings is a sensible place to put it.

The good news is that even though the Bank of England base rate was cut to 5% at the beginning of August this year, there are still interest rates of 5% or even more available. The tough decision is what sort of account to choose.

The top paying 3-month fixed term bond is with a bank called Mizrahi Tefahot Bank Ltd paying 5.12% AER – which is available exclusively via the Flagstone cash platform. However, as with most fixed rate bonds, there is no access before maturity, so if you need the cash before the term ends, you’d need to find an alternative source.  On a deposit of £370,000, you could earn approximately £4,736 over the three months. This would take you both well over your Personal Savings Allowances (PSA) so you’ll need to remember that there will be tax to pay.

If there is a possibility that you may need earlier access, the top easy access account is with the Cahoot Simple Saver account, which is currently paying 4.85% AER.

You could also consider a notice account – an account that requires you to give a certain number of days’ notice before the funds will be released. The top 90-day notice account is currently being offered by Investec Bank and is paying 5.25% AER – but to be on the safe side, you’d need to consider giving the required notice as soon as, or shortly after you open the account if you want to know you can get hold of the money three months later.

Of course, both easy access and notice accounts have variable rates, so the interest rate could be cut at any time, however if you’re not sure about what access you’ll actually need, these could be the most cost-effective routes to take.

One other concern of having such a large lump sum of cash to deposit, would often be the protection of the money. The Financial Services Compensation Scheme (FSCS) protects up to £85,000 per person, per banking licence. However, the FSCS also protects ‘temporary high balances’ of up to £1 million for six months from the date you are credited with the money, although this only applies to funds received from certain life events such as redundancy, divorce, personal injury amongst other things – but also on the sale of your main residence.

So that’s one less thing to worry about. Now you just need to find the best savings account that pays you the best interest with the access you might need. Keep an eye on the best rates on our Best Buy tables.

31/08/2024

Question: I am Power of Attorney for my mum who has moved into a care home, so we are selling her house. I need access to the cash but do I need to open lots of bank accounts to keep the money safe – I’m sure it’ll be tortuous.

If you are looking to keep the money in cash, you may need to open multiple savings accounts in order to make sure it is all protected, as the Financial Services Compensation Scheme (FSCS) protects up to £85,000 per person, per banking licence for cash savings. And although you are a Power of Attorney (POA), this doesn’t mean the cash is being held in joint names – you are simply looking after it for your mum - so you can’t double up on the protection per account.

Unfortunately opening a savings account under POA can be a little more convoluted and difficult. There is certainly more administration, as you will need to supply proof of address and identification for you as the attorney, as well as your mum, and supply certified copies of the POA document itself. Plus, you will often need to apply via the post or in branch. So, opening multiple accounts can be undesirable, albeit important as you should be acting in the donor’s best interest at all times.

But there are ways to make it easier.
One effective approach is to use cash savings platforms. Using a cash savings platform, allows you to open multiple accounts without the need to apply to each one individually.  A single application onto the platform provides a single point of access allowing you to easily find competitive interest rates, move money between accounts and monitor the overall performance of your savings, without juggling multiple logins and statements - simplifying the management process and allowing you to focus more on ensuring your relative's well-being and less on the complexities of financial administration.

Some platforms (such as Raisin) will only allow you to apply as an individual – not under POA - so you need to find the right fit.  Insignis Cash, who powers our Savers Hub and Flagstone are two such platforms.

You could also consider National Savings & Investments (NS&I). Any cash deposited with NS&I is guaranteed by HMRC – not just £85,000 - so you could simply open accounts with that one provider. However, due to this unique protection, NS&I is often less competitive, so you could earn more interest elsewhere.

17/08/24

Question: I have already paid £20,000 into a cash ISA for the current (24/25) financial year.

The new ISA rules seem to be causing more confusion than ever. But for this situation, the new rules actually have no bearing on what you are allowed to do, as you are looking to switch an ISA from a previous tax year.

And this is a key point to make. If you are looking to move money from a stocks and shares ISA into a cash ISA, you need to make a transfer – don’t sell your current ISA and then try to deposit the proceeds otherwise you will lose the old ISA allowance and instead, in effect, be depositing new cash – so that would mean you cannot open another cash ISA in the current tax year. If you transfer though, you can.

The other aspect that you’ll need to consider is that although you should be able to transfer your stocks and shares ISA into any cash ISA, not all providers will allow this, so you'll need to check with your proposed ISA provider.

01/06/2024

Question: I have recently put £15k into a fixed rate ISA.  I would now like to invest £5k in a variable cash ISA, to maximise my allowance for this tax year.  Can I open a new cash ISA with a brand new company, or do I have to put the £5k into one I already have? 

This is a very timely question, given that the rules will be changing from the new tax year. Unfortunately for you, as these changes won’t come in until at least 6th April 2024, it may mean you will be unable to maximise your ISA allowance this financial year.
Current ISA rules state that you cannot open more than one of each type of ISA each tax year, so that means that unless you can top up the fixed rate ISA that you have already opened this year, you may not be able to top up your ISA at all. It’s unlikely that you can top up a fixed rate ISA, as there is normally a short funding window, after which it will be closed for further deposits.

However, if the ISA you have opened and funded this year is what is known as a ‘portfolio ISA’ you might be able to add more. If it is, you will be able to open another ISA with that provider – either fixed or variable – with up to £5,000 but you will need to ask your current provider if they are portfolio ISAs or not.
From the new tax year this restriction will be removed, so you would be able to open another ISA freely, with either any of your current ISA providers, or with someone completely new. That said, although it’s a change to the rules, it’s not mandatory and many savings providers have stated that they will not be ready for the new changes by April 6. Others have said they may not adopt the changes at all, so we’ll have to see how beneficial this rule change really will be.

16/03/24

Question: How does the tax free Personal Savings Allowance (PSA) work for savers with a joint account?

This is a great question and happily quite a simple one to answer.

The interest held in a joint account is usually split 50:50 between the account holders, and this is why, assuming the account holders have no other accounts with that provider, a balance of up to £170,000 is protected by the Financial Services Compensation Scheme (FSCS) - £85,000 for each saver.

And the same applies for the Personal Savings Allowance. As the name suggests, this is a personal allowance, so each saver can earn some tax-free interest each year if they pay less than additional rate (45%) tax.  Each of you could earn up to £1,000 in savings interest if you are a basic rate taxpayer, or £500 if you are a higher rate taxpayer and pay no tax. So quite simply, split the interest earned each year between you, to see if you are earning more interest than your own PSA. If not, there is no tax to pay. If there is, then you need to make sure that you pay the necessary 20% or 40% tax.

The tax is often deducted automatically by a change in your tax code, if you are part of the PAYE scheme, or you might need to complete a tax return.

Arrange a free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. The Financial Conduct Authority (FCA) does not regulate tax advice. The accounts and rates mentioned in this article are accurate and correct as at the time of writing