WEBVTT - What Do You Need All That Cash For? 

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio news. Welcome to Meron Talks

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<v Speaker 1>Your Money, the personal finance edition of Merin Talks Money.

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<v Speaker 1>In these bonus podcasts, we talk about the best strategies

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<v Speaker 1>for making the most of your money. I'm Merensumset Web

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<v Speaker 1>and with me senior reporter, a money dissult author John

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<v Speaker 1>Stepeic Hi John hi Elm. Now listen, John, just before

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<v Speaker 1>we came on air, you gave me one of the

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<v Speaker 1>best pieces of personal finance advice I think you've ever

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<v Speaker 1>given me. So I think we should share it because

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<v Speaker 1>you know the way we do this Sometimes we record

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<v Speaker 1>from home. I'm at home.

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<v Speaker 2>I'm in Scotland.

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<v Speaker 1>It's zero degrees, it's sleeping outside, but little fan heater

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<v Speaker 1>by my feet. I have to turn it off because

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<v Speaker 1>it ruins the sound. I'm complaining about this because I'm

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<v Speaker 1>wearing an outdoor coat inside. And John says, what did

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<v Speaker 1>you say, John?

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<v Speaker 2>I said you should buy on those infrared panel heaters because,

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<v Speaker 2>believe or not, they actually work a lot better us

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<v Speaker 2>because I've tried a lot of heaters in my freezing

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<v Speaker 2>cold study. Don't tell Jimmy Dooming. I'm working from home

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<v Speaker 2>today and it's great. It's great, and it's silent, completely silent,

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<v Speaker 2>and it's a lot better than those oil based ones

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<v Speaker 2>as well, just gives off a much more I kind

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<v Speaker 2>of dryer heat. So yeah, I know you should definitely

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<v Speaker 2>get one.

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<v Speaker 1>There you go. Listeners, don't say you don't get proper

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<v Speaker 1>personal finance tips on this podcast and direct from both

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<v Speaker 1>of our fraising cold offices. Thank you, John. Right now,

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<v Speaker 1>this week we want to talk. We want to talk

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<v Speaker 1>about something else apart from heating. We want to talk

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<v Speaker 1>about cash isis now readers of my newsletter, which I

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<v Speaker 1>think all of you should be and if you're not,

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<v Speaker 1>you really should be by now. It's got lots of

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<v Speaker 1>great stuff in it, including links to John's great work. Anyway,

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<v Speaker 1>if you get that, you will have some insight into

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<v Speaker 1>how I feel about the conversation around cash ices at

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<v Speaker 1>the moment. But if you don't know what's going on here,

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<v Speaker 1>rumors are swirling all over the place that the Chancellor

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<v Speaker 1>Rachel reads her of the DODGYCV is thinking about stripping

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<v Speaker 1>this very popular savings there of its tax benefits. So

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<v Speaker 1>is this the wake up goal that some of you

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<v Speaker 1>might need to actually use up? That is reliance before

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<v Speaker 1>the fifth of April, and is the shakeup a good idea?

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<v Speaker 1>So I think the first thing we're going to do here, John,

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<v Speaker 1>is we're going to actually say what is a cash isa?

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<v Speaker 1>How does this work? And as things stand at the moment,

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<v Speaker 1>should you have one?

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<v Speaker 2>Yes, you can put up to twenty grand a year

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<v Speaker 2>in a cash iSER as part of your overall eyeser allowance. Okay,

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<v Speaker 2>so you get twenty grand to use as you want,

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<v Speaker 2>and all of it can go to cash if you want.

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<v Speaker 2>When it's in there. You don't pay tax on interest.

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<v Speaker 2>And in the old days that didn't really matter because

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<v Speaker 2>you weren't getting paid any interest. But now it's actually

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<v Speaker 2>really important to protect your cash savings from interest tax

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<v Speaker 2>if you can, because basically paying people are paying a

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<v Speaker 2>lot more because interest rate is a five percent as

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<v Speaker 2>opposed to zero percent.

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<v Speaker 1>I love your definition, John, of the old days, well

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<v Speaker 1>twenty twenty one, right, how did this happen? For me?

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<v Speaker 1>The old days is the nineteen seventies. For you, the

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<v Speaker 1>old days is twenty twenty. Well, listen, the reason this

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<v Speaker 1>all really matters is that you get you still get.

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<v Speaker 1>I'm pretty much every tax allowance in the world has

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<v Speaker 1>been taken away, but you do still get what they

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<v Speaker 1>call a personal savings allowance. So if you're a twenty

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<v Speaker 1>percent taxpayer, you can get one thousand pounds worth of

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<v Speaker 1>interest before you start paying tax on it. If you're

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<v Speaker 1>a forty percent taxpayer or a higher taxpayer, you can

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<v Speaker 1>get five hundred pounds of interest. If you're a forty

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<v Speaker 1>five percent taxpayer, you are obviously the evil rich and

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<v Speaker 1>you get nothing. Just so you're absolutely clear, evil rich,

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<v Speaker 1>nothing for you. There's also something called the starting rate

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<v Speaker 1>for savings, which is yet another one of those tapered allowances,

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<v Speaker 1>but does allows you have no other income of any

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<v Speaker 1>kind whatsoever to goet to think it's five thousand pounds

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<v Speaker 1>isn't it an an interest tax free? So if you

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<v Speaker 1>have very very little in the way of savings, and

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<v Speaker 1>you do not expect to have more in the way

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<v Speaker 1>of savings, and you are perhaps not even a taxpayer,

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<v Speaker 1>then you might look at a cash iceer and say, well,

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<v Speaker 1>what's the point. There's nothing in it for me? Right, Yes,

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<v Speaker 1>you may, it's just complication, And in the past I

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<v Speaker 1>might have agreed with you, because in the past it

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<v Speaker 1>was true that very often the interest rates on cash

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<v Speaker 1>isers were lower than the interest rates on actual savings

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<v Speaker 1>accounts because they can get away with it, right, Yeah,

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<v Speaker 1>makes sense. If you can get away with it, then

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<v Speaker 1>that's what you do. But at the moment, actually they're

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<v Speaker 1>more equal and effective. I was just looking online before

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<v Speaker 1>we started talking, and it looks like you can actually

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<v Speaker 1>get more on an instant access cash icer than you

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<v Speaker 1>can on an ordinary savings account. So you need to

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<v Speaker 1>look at all these things when you're talking about whether

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<v Speaker 1>whether a cash icer is the right thing for you.

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<v Speaker 1>But if you have a reasonable amount of money, as

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<v Speaker 1>John just said, you've really got to get a cash isico.

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<v Speaker 1>So you know, at the moment, if you've got if

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<v Speaker 1>you're a lower rate tax payer, if you've got twenty

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<v Speaker 1>thousand pounds in savings, you're already hitting up against that allowance.

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<v Speaker 1>If you're a higher rate tax payer, ten thousand pounds,

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<v Speaker 1>But have you hit tap against that allowance, wouldn't it? Yes,

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<v Speaker 1>about ten thousand pounds would have you hit up against

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<v Speaker 1>the cash saving So if it's any of those things

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<v Speaker 1>and you have cash, you really need to have a

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<v Speaker 1>cash ice. But while it might work for us, does

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<v Speaker 1>it work for Rachel Reeves? And there's the other question. Now,

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<v Speaker 1>there is a huge amount of money saved in ices.

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<v Speaker 1>I mean massive. This is one of the most popular

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<v Speaker 1>personal finance products we've ever had in the UK. So

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<v Speaker 1>the latest numbers twenty twenty three show twelve point four

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<v Speaker 1>million adult iss subscribed to The total market value then

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<v Speaker 1>of these ices is seven hundred and twenty five point

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<v Speaker 1>nine billion. But here's the interesting bit. In that year,

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<v Speaker 1>around sixty three percent of the money that went into

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<v Speaker 1>ISS stayed in cash ices. But if you look at

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<v Speaker 1>the total value of the ices, while the majority of

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<v Speaker 1>the money that is going in is going into cash ices,

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<v Speaker 1>the eventual value is the other way around. So sixty

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<v Speaker 1>percent that is going in they're staying in cash isceers.

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<v Speaker 1>Look at the result, sixty percent of the market value

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<v Speaker 1>of all ices shares a forty percent of cash, which

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<v Speaker 1>is telling you that if you put your money into

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<v Speaker 1>the market, you get a bigger return longer term than

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<v Speaker 1>you doing cash. Now we know that, we know that,

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<v Speaker 1>but it's interesting to see it here in these bare numbers.

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<v Speaker 2>Right yeah, And I mean I think somethings people need

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<v Speaker 2>convincing because it's one thing we know it. But one

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<v Speaker 2>of the reasons that the cash iszers get so much

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<v Speaker 2>traction here is because people just don't trust the stock

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<v Speaker 2>market and this country and the way that they do

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<v Speaker 2>in the US for example.

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<v Speaker 1>Okay, so here's the thing. All that money pouring into

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<v Speaker 1>cash ices Richeal is pure. She is looking for cash everywhere,

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<v Speaker 1>looking for a way to deal with her growth mission

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<v Speaker 1>and thinking to herself, how do I get my hands

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<v Speaker 1>on a big pile of cash to push into my

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<v Speaker 1>growth mission? And I, you know, usually we say pensions, Well,

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<v Speaker 1>why do you know, why do you want pensions? Because

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<v Speaker 1>that's where the money is. All this cash is just

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<v Speaker 1>sitting there in Isis. We may agree, you and I

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<v Speaker 1>that maybe people shouldn't hold very much cash in an

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<v Speaker 1>I said, when we go right back to personal finance,

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<v Speaker 1>we say how much how much cash did you hold?

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<v Speaker 1>And normally we top out at six months?

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<v Speaker 2>Right, Yeah, for what can people sex months? Definitely?

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<v Speaker 1>Yeah, for older people probably a lot more. But nonetheless,

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<v Speaker 1>if you've got more than that, possibly you should be

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<v Speaker 1>in the market anyway. If you should be anyway, And

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<v Speaker 1>Rachel Rives were quite like all their money in the

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<v Speaker 1>market because it might kickstart the the stock market in

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<v Speaker 1>some way, because in the DoD rooms so things have

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<v Speaker 1>got better recently, but still not great. It could do

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<v Speaker 1>with a massive inflo cash. So in a way I

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<v Speaker 1>hate to approve of anything where normally we do nothing

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<v Speaker 1>but disapprove on this podcast, but in a way, clamping

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<v Speaker 1>down to a degree on the cashire so wouldn't be

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<v Speaker 1>an altogether bad idea, would it.

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<v Speaker 2>Yeah, there was talk from one of the carb the

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<v Speaker 2>manisters who used to be Tanker once upon a time

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<v Speaker 2>about putting in a kind of lifetime allowance on ises,

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<v Speaker 2>a bit like the old lifetime allowance on pensions, and

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<v Speaker 2>I think that would be a very stupid idea, but

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<v Speaker 2>it's Yeah, there may be an argument for putting a

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<v Speaker 2>cap on the amount that you can hold in a

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<v Speaker 2>cash eyeser, because looking at it from a non punitive

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<v Speaker 2>point of view, I suspect there probably are a lot

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<v Speaker 2>of people in the UK who are holding more cash

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<v Speaker 2>than is sensible or good for their long term finances.

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<v Speaker 2>That is something that we should be looking to address.

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<v Speaker 2>And yeah, you know, you could be addressing the way

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<v Speaker 2>things like oh, personal finance education at schools and all

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<v Speaker 2>that nonsense, But actually probably an easy way to address

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<v Speaker 2>is to say that, well, okay, you can only have

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<v Speaker 2>this much and this much would be a reasonable emergency stash.

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<v Speaker 2>So six months of the say the median post tax

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<v Speaker 2>income something like that, and then above and beyond that.

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<v Speaker 2>If you want the tag speak, you have to put

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<v Speaker 2>your money into stocks, preferably UK list in store.

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<v Speaker 1>It's complicated though, capping it like that. And I never

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<v Speaker 1>really approved caps because because of inflation, because of interest rates,

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<v Speaker 1>because of all this kind of thing. You know, the

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<v Speaker 1>big recommendation, I think it's that I never moved them.

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<v Speaker 1>I think it some resolution foundation that has said that,

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<v Speaker 1>you know, ISO cash savings should be capped at one

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<v Speaker 1>hundred thousand pound. Sure, who you know, Maybe.

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<v Speaker 2>It wasn't cash savings, it was the total, that's what

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<v Speaker 2>was it.

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<v Speaker 1>Stupid, Okay, that's as much extra stupid, don't care, they're idiots.

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<v Speaker 1>We'll push that into one side. No thank you. But

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<v Speaker 1>you know, if you put on a cap like that,

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<v Speaker 1>say you started at let's say you started at fifty thousand, right,

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<v Speaker 1>then you have inflation and you have interest rates. Let's

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<v Speaker 1>say inflation goes mad in the ukg is I mean,

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<v Speaker 1>it could happen, right, and suddenly you've got inflation at

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<v Speaker 1>ten percent and interest rates at twelve percent, because remember that,

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<v Speaker 1>in an ideal world you're making a real return on

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<v Speaker 1>your money, and suddenly that fifty thousand everyone runs over

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<v Speaker 1>it in ten minutes. So a cat is not a

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<v Speaker 1>very good idea. But maybe a reduction in the amougam

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<v Speaker 1>the cash aswer in the stocks and shares I say,

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<v Speaker 1>used to be separate allowances, remember that.

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<v Speaker 2>Yeah, that's a good point.

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<v Speaker 1>Was that the worst thing in the world.

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<v Speaker 2>That is going back to the old days?

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<v Speaker 1>What's the real all this?

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<v Speaker 2>That would make sense? Yeah, to reduce the annual.

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<v Speaker 1>Loans, take it back to two things, and at the

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<v Speaker 1>same time dump all the other iceis, which we're not

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<v Speaker 1>very pleased with. You know, the the lifetime I said,

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<v Speaker 1>I can't even remember. All the other ones are called

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<v Speaker 1>the innovative finite eyeso, all these confusing ones that make

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<v Speaker 1>the ice a landscape difficult. Go back to cash and

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<v Speaker 1>stocks and shares, and perhaps we could stop calling it

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<v Speaker 1>stocks and shares because no one knows what that means either,

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<v Speaker 1>do they?

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<v Speaker 2>Oh? Yeah, no, it means the same.

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<v Speaker 1>Hang, yeah, exactly one day, one day, we're going to

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<v Speaker 1>do a whole podcast of a difference between a stock

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<v Speaker 1>and a share.

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<v Speaker 2>Take a second, intriguing piece of financial history, and it's

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<v Speaker 2>it would I don't think you're seeing that long.

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<v Speaker 1>And then you could just have the cash icer and

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<v Speaker 1>the investment ISO.

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<v Speaker 2>That would make sense.

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<v Speaker 1>In fact, we could go all the way with this.

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<v Speaker 1>We could have the cash icer and the brit investment

0:11:10.960 --> 0:11:15.120
<v Speaker 1>icer and nothing else. Job done. Listen, There's one more

0:11:15.120 --> 0:11:17.680
<v Speaker 1>thing I want to say on ices, and one reason

0:11:17.720 --> 0:11:21.400
<v Speaker 1>why maybe change isn't coming particularly fast. The brilliant thing

0:11:21.440 --> 0:11:24.040
<v Speaker 1>about ices is that they do not have to be

0:11:24.080 --> 0:11:26.720
<v Speaker 1>declared in any way to the tax man. These don't

0:11:26.720 --> 0:11:29.240
<v Speaker 1>go in your self assessment form. Nothing has to happen.

0:11:29.240 --> 0:11:31.080
<v Speaker 1>There's no admin in an iSER. This is why I

0:11:31.080 --> 0:11:32.760
<v Speaker 1>love an ICER. You put the money in the iSER

0:11:32.920 --> 0:11:35.280
<v Speaker 1>and you have to do no admin around this at all.

0:11:35.320 --> 0:11:37.880
<v Speaker 1>There's no trying to get tag certificates, no trying to

0:11:37.960 --> 0:11:41.920
<v Speaker 1>check capital gains, nothing, It's just admin free. And for me,

0:11:42.080 --> 0:11:45.360
<v Speaker 1>anything admin free is brilliant. Even if I had the

0:11:45.360 --> 0:11:47.920
<v Speaker 1>biggest personal savings allowance in the world, I'd probably still

0:11:47.920 --> 0:11:49.560
<v Speaker 1>have an iSER, so I never had to get a

0:11:49.559 --> 0:11:53.040
<v Speaker 1>certificate and declare to the tax man because it's so boring. Now,

0:11:53.320 --> 0:11:55.960
<v Speaker 1>if you get rid of the cash icer or you

0:11:56.040 --> 0:11:58.440
<v Speaker 1>reduce it down to a fairly minimal amount, and people

0:11:58.480 --> 0:12:00.960
<v Speaker 1>want to hold more cash. You aren't going to drag

0:12:01.040 --> 0:12:04.040
<v Speaker 1>I think a whole of the people into the self

0:12:04.040 --> 0:12:05.040
<v Speaker 1>assessment system.

0:12:05.600 --> 0:12:08.800
<v Speaker 2>Yeah, I mean the government wouldn't see that as a problem,

0:12:08.920 --> 0:12:09.640
<v Speaker 2>but we do.

0:12:09.840 --> 0:12:12.080
<v Speaker 1>Well, they might have to, you know, hire some more people.

0:12:12.559 --> 0:12:15.480
<v Speaker 2>Think they would see that as a problem. It's funny

0:12:15.520 --> 0:12:18.840
<v Speaker 2>they don't make hire in more tax people because you

0:12:18.840 --> 0:12:21.960
<v Speaker 2>can view that as an investment because they collect extra tax.

0:12:22.440 --> 0:12:22.680
<v Speaker 1>Yeah.

0:12:22.920 --> 0:12:25.439
<v Speaker 2>Yeah, there's a definitely argument for it. The problem is

0:12:25.480 --> 0:12:27.559
<v Speaker 2>anything you see there's an argument for this stuff, a

0:12:27.640 --> 0:12:32.040
<v Speaker 2>politician goes ahead and pushes it to the most ridiculous

0:12:32.600 --> 0:12:35.240
<v Speaker 2>extent that it can. So from that point of view,

0:12:35.280 --> 0:12:38.880
<v Speaker 2>that's why I would be worried. But if you did

0:12:38.880 --> 0:12:40.360
<v Speaker 2>that along the lines of what we are talking about,

0:12:40.440 --> 0:12:41.400
<v Speaker 2>then that would be fine.

0:12:41.720 --> 0:12:43.439
<v Speaker 1>I suppose. The key thing is that if there were

0:12:43.480 --> 0:12:45.600
<v Speaker 1>to be a change to cash isces, it's very unlikely

0:12:45.640 --> 0:12:48.120
<v Speaker 1>they'd suddenly say, oh, you people with two hundred grand

0:12:48.120 --> 0:12:49.760
<v Speaker 1>in cash in your eyes, you're going to have to

0:12:49.760 --> 0:12:51.440
<v Speaker 1>take one hundred and fifty out of it. Doesn't work

0:12:51.480 --> 0:12:54.600
<v Speaker 1>like that, So what you have in already will probably

0:12:54.640 --> 0:12:57.600
<v Speaker 1>be safe inside the wrapper. So remember that you can

0:12:57.640 --> 0:13:00.680
<v Speaker 1>put in twenty thousand pounds every year. Yeah, but in

0:13:00.720 --> 0:13:02.640
<v Speaker 1>twenty grand. Now if you haven't already, you can put

0:13:02.679 --> 0:13:04.560
<v Speaker 1>in another twenty ground at the beginning of April. Suddenly

0:13:04.559 --> 0:13:07.199
<v Speaker 1>you've got forty thousand pounds protected inside a cash ice

0:13:07.200 --> 0:13:09.199
<v Speaker 1>for acount, assuming that it's cash that you want to

0:13:09.320 --> 0:13:13.880
<v Speaker 1>That's just to say, this is an extremely generous system.

0:13:14.440 --> 0:13:17.200
<v Speaker 1>Already you can get a lot of cash in. I

0:13:17.200 --> 0:13:19.120
<v Speaker 1>think that's what I need to say on isis.

0:13:18.960 --> 0:13:21.240
<v Speaker 2>And it's just what's doing. It's worth doing.

0:13:21.520 --> 0:13:24.360
<v Speaker 1>It's worth doing. You know, at the moment, pretty much

0:13:24.360 --> 0:13:26.480
<v Speaker 1>all your money is going to disappear in tax quite soon.

0:13:26.520 --> 0:13:29.520
<v Speaker 1>So anything you can protect protect us soon as you

0:13:29.720 --> 0:13:32.400
<v Speaker 1>can write anything else to add to isis John.

0:13:33.440 --> 0:13:35.760
<v Speaker 2>No, I think that's a perfectly cheerful note to you.

0:13:35.840 --> 0:13:38.560
<v Speaker 1>Right, Okay, any more tips on heating, because I'm just

0:13:38.640 --> 0:13:40.640
<v Speaker 1>off to buy one now. Any favorite brands?

0:13:42.040 --> 0:13:46.400
<v Speaker 2>Actually, No, it's a big weight pinel he That's all

0:13:46.440 --> 0:13:47.160
<v Speaker 2>I can say about.

0:13:48.000 --> 0:13:50.120
<v Speaker 1>Okay, it doesn't sound very attractive, but I guess that's

0:13:50.160 --> 0:13:51.160
<v Speaker 1>the least of my worries.

0:13:51.679 --> 0:13:54.360
<v Speaker 2>Well, it's bigger than a fine here, but it's not as.

0:13:54.200 --> 0:14:05.199
<v Speaker 1>Noisy Okay, all good tips. Thanks John, Thanks for listening

0:14:05.240 --> 0:14:07.040
<v Speaker 1>to this week's Marin Talks to Your Money. If you

0:14:07.200 --> 0:14:09.600
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