As we enter a new tax year, you might be thinking about getting in early with your new allowances and putting money into an ISA. Yet, interest rates offered to savers have been low for some time and NS&I has now announced that it will cut the rate on its Direct ISA from 1.25% to 1% in June which increased the concern I had when I read that 75% of all ISA money is sitting in cash.
Research has shown that investors would need smaller sums to retire if they invested these in a diversified portfolio, than if they were held in cash, earning low interest rates. If held in cash, there is risk for the saver (apart from inflation) that the savings pot will fall short of the amount needed for their financial plans – including saving for retirement.
With the abundance of ISAs (including Chancellor Osborne’s new Lifetime ISA), tax-wrappers and various tax-efficient investments it’s very easy to become confused and revert to the safety of savings. But there are other options available, such as considering investing in a stocks and share ISA instead or opening a Lifetime ISA which has the added benefit of a 25% government bonus.
At CBAM we offer a stocks and shares ISA on our Self-Directed platform, you can find out more here.
Please be aware, the value of investments will go up and down and you may get back less than you invested. Any tax benefits or tax planning opportunities depend on individual circumstances and are subject to change.
On fixed rate cash Isas, the top one-year deal is just 1.45% from Kent Reliance, while Virgin Money, Skipton Building Society and Marks and Spencer Bank all pay 1.4%. For two years Kent Reliance pays 1.65% and TSB 1.6%.