You’ve scrimped and saved to put a little bit away for a rainy day. You’ve forgone fancy cars, expensive restaurants and flashy foreign holidays for old bangers, bargain buckets and the occasional weekend in Bognor. In short, you’ve done everything right, so you’re probably feeling more than a little aggrieved at the financial climate we find ourselves in at the start of 2009.
With interest rates tumbling so low the banks could even start owing us money, it’s a brilliant time for borrowers, but not so great if you’re saver. While mortgage borrowers have watched their monthly payments plummet, savers are forced to grit their teeth while the interest they earn on their nest egg dwindles to next to nothing.
Savers need tactics
But there are ways to fight back. Smart savers are taking action and one of the weapons at their disposal is an individual savings account – or ISA.
If you’re a taxpayer, one of the features of an ISA is that the taxman will not be able to get his hands on 20% (or 40% if you’re a higher rate taxpayer) of your interest, nor will you be liable for any capital gains tax. The value to an investor of the tax advantages of an ISA will depend on your personal circumstances which may change in the future. Tax rules can change.
You may have looked into getting an ISA in the past but got confused by the different types on offer. Luckily, new rules brought in last April have made the set-up much more straightforward. Now ISAs fall into just two different types – Cash and Stocks & Shares.
A jargon-free guide from the Financial Services Authority can be found here but in the meantime, the following information from Scottish Widows, a leading stocks and shares ISA provider, may also be useful.
How much can I invest in an ISA?
One person can invest up to £7,200 in total. You can invest your entire ISA allowance of £7,200 in a Stocks and Shares ISA, or you can invest up to £3,600 in a Cash ISA and the remainder in a Stocks and Shares ISA.
What is a Cash ISA?
When opening a Cash ISA account, you choose a provider, normally a bank or building society. Your account then operates much like a normal deposit account, with many offering internet banking, for example.
While some accounts require two days notice before they’ll undertake a free transfer, many Cash ISAs offer savers instant access to their money.
Stocks and Shares ISAs
This type of ISA invests in funds which are invested in the stock market and any gains the money makes is not taxed, although the value of your investment and any income from it is not guaranteed and can go up and down depending on the performance of each of the investments in the fund.
Investors again choose an ISA manager, but this time it’s normally a fund manager, bank or an investment provider. A financial adviser can help you select a plan manager and funds to suit you.
You don’t have to invest all your money in one go. At Scottish Widows the minimum investment for monthly payments is £10 per fund subject to a minimum application of £50.
Which one is better?
Recent cuts in interest have seen returns fall, yet the BBC reported in early 2009 that many financial experts believe that the tax relief alone makes Cash ISAs still worth investing in, even if you dip into the funds from time to time.
Meanwhile, the Daily Mail reported in early February 2009 that thousands of disgruntled savers are now turning their attention to the Stocks and Shares ISA, where by choosing their funds wisely they have been able to get a return of 7%.
Interested in ISAs? Talk to Scottish Widows on 08457 678 910. Founded in 1815, Scottish Widows has been working to help people plan their financial futures, visit now to find out more about our individual savings accounts (ISAs), pensions and life insurance.
