Cash ISAs v Stocks & Shares ISAs – What’s the best for me?

It’s a tough time to try and get a decent return on your savings – and that’s why Stocks and Shares ISAs deserve some serious consideration.

When thinking about saving for your or your child’s future, choosing what type of ISA to go for – Stocks and Shares or Cash – depends on a number of factors, and you can start by asking yourself some questions.

  • What’s your savings goal?
  • How long do you plan to save for?
  • How do you feel about balancing risk and reward?

Let’s start by taking a look at some Individual Savings Accounts (ISAs) basics:

What is an ISA?

  • ISAs are simply a type of savings account where you don’t pay tax on the interest on the money you keep in them, unlike standard savings accounts where tax is taken from the interest earned.
  • Is there a difference between ISAs and NISAs? They were originally called ISAs, and when the government changed some of the ISA rules in the 2014 Budget, they called them the New ISAs,
  • or NISAs. Providers use either name now.

Who are ISAs for and how much can I save?

  • Anyone over 16 can open a Cash ISA, and over 18s can open a Stocks and Shares ISA.
  • Each April, you have a fresh allowance (the amount you can save into an ISA) to use and, crucially, once money is in there, it stays tax-free, year after year. Someone who’d filled their ISA allowance every year since they started in 1999 could now have around £100,000, including interest protected from the taxman.*
  • You are only allowed to put money into one Cash ISA and one Stocks and Shares ISA in a tax year. You can put all your annual savings allowance into one type of ISA, or you can split it between the two types however you like.
  • You can pay in a lump sum, or save monthly; and you can top up your ISA through out the year too.
  • You can withdraw your money free of tax, although check with your provider for their rules on accessing your money as these can differ.

So, while many of the ISA rules and regulations are the same for all ISA products, there are some key differences between the two types of ISA – Cash, and Stocks and Shares.

What are cash ISAs and how do they work?

  • Works much the same as an ordinary savings account, but you don’t pay tax on any interest earned
  • Instant access, regular savings, and fixed term options available
  • No set up fees to pay
  • Suitable if you prefer to have lower investment risks

Stocks and Shares ISAs explained

  • Unlike a Cash ISA you are not just saving money, but investing it in different asset types such as stocks and shares, with a view to growing your savings over the longer term
  • You don’t pay tax on any income or capital gains made on your investments
  • Stocks and Shares ISAs provide an opportunity for a better return on your savings over the longer term, depending on the performance of the investment
  • You can withdraw your money at any time, although different providers have different rules and conditions, withdrawals cannot be replaced and replacement would count towards your annual ISA limit. Depending on how long you’ve had the plan and when you withdraw money, as with any investment linked to the stock market, you could end up getting back less than you put in.

Short or long term savings – which is best for me?

If you want to play it on the safer side, the conclusion is, put your money into a Cash ISA. If you’re happy to balance an element of risk with a greater opportunity for your funds to flourish over a longer period, then perhaps you should plump for a Stocks and Shares ISA – they come in different formats – some are ready made and others give you the option to choose which funds to invest in, and they also have varying levels of risk.

At Foresters, for example, because we are owned by and operated for our members (there are no shareholders to pay), we take a responsible, long-term approach to savings and investments. Our With Profits savings plans sit comfortably between lower-risk cash savings and higher-risk stocks and shares.

Please note:

Tax rules may change and depend on individual circumstances.

You should be aware that you may not get back what you pay into a Stocks & Shares ISA dependent on the investment term and investment conditions on withdrawal.

The content of this article is for information purposes only and does not constitute financial advice. We do not offer financial advice. If you’re unsure as to the suitability of a product you should seek advice from a Financial Adviser. You may have to pay for this advice.

*Source: Martin Lewis Six reasons why ISAs still beat other savings accounts

Cash ISAs? Stocks and Shares ISAs? Where do you start?

Why opening an Individual Savings Account (ISA) could help your savings keep up with the cost of living

When it comes to thinking about the best way to save money for your future goals, one thing to consider is how you’re going to get your hard earned cash to beat the effects of inflation – which is essentially the rising costs of things – so you don’t end up losing money on your money, at least in terms of its spending power.

Imagine you’d put £5,000 in a standard current account back in 2005 and left it there, how much would it be worth today? Based on an interest rate of 0.52%*, you’d have around £5,266. While that’s not too bad, would you be able to buy as much with it now as you could back then?

How much bang will you get for your buck?

Back in 2005, that £5,000 would have been worth more to you because you could buy more with it at that time. In 2016, thanks to inflation, you’d actually need £6,857 to have the same amount of buying power. Suddenly, that £5,266 you have in 2016 doesn’t look so good… So, what can you do to help your money keep up with the cost of living in the future?

Opening a savings account and putting a regular amount away each month is a smart choice. Choosing an ISA of some kind where your money has the opportunity to grow, tax free, is even smarter.

Are you a saver, or an investor?

ISAs are easy to open, available to anyone over the age of 16 (18 for Stocks and Shares ISAs) and offer a tax free way to save and invest.

There are two types of ISA – Cash ISAs and Stocks and Shares ISAs. Cash ISAs are suitable if you’re a saver who simply wants to earn tax-free interest on your savings. Stocks and Shares ISAs are suitable if you have a longer-term savings goal in mind, are comfortable balancing risk with the opportunity for growth, and want to step up from being a saver to choosing a plan which invests your money.

Stocks & Shares ISAs also have varying levels of risk depending on the investment type. At Foresters, for example, our With Profits fund sits comfortably between lower-risk cash savings and higher-risk stocks and shares.

Why not consider the options with our comparison chart below? And, while this is a useful guide, it’s essential to note that past performance is no guarantee of future performance. However, it does serve to illustrate how balancing a small amount of risk with the potential for greater reward, has paid off in the past.

A £1,000 Foresters Friendly Society NISA taken out on 1st July 2005 and cashed-in on 1st July 2015 received a payout of £1,827.59, which equates to growth, after charges, of 82.8% or 6.2% per annum.

Please note:

A Stocks and Shares ISA is intended to be a longer-term investment, which can potentially yield better returns than a Cash ISA. The Stocks & Shares ISA is available to anyone over 18 years old. You should be aware that you may not get back what you pay into a Stocks & Shares ISA dependent on the investment term and investment conditions on withdrawal.

Tax rules may change and depend on individual circumstances. Inflation could erode the value of your money over time.

The content of this article is for information purposes only and does not constitute financial advice. We do not offer financial advice. If you’re unsure as to the suitability of a product you should seek advice from a Financial Adviser. You may have to pay for this advice.

Source

* Interest rate calculated by taking an average of interest rates of all 53 current accounts featured on comparethemarket.com as at 2 February 2016, which calculates as 0.52%

When will I have enough money to retire?

And other big retirement questions…

If you have more questions than answers when it comes to planning your retirement, it might feel pretty stressful – but at least you’re not alone, as our long-term saving and retirement survey discovered…

Looking at the results of our Long-Term Saving and Retirement survey, we were struck by the uncertainty many people have about how their retirement will shape up.

For a start, over a third of respondents who were still in employment said they don’t know when they will retire. And while no one would be surprised to hear that 20 or 30-somethings haven’t yet decided when they’ll wave goodbye to their working lives, this includes a third of over-45s, who you might expect to be a little further along in their planning.

It seems unlikely that these people will come to a conclusion anytime soon either, as almost a quarter say they’ll continue to work until they’ve saved enough to retire on, and even more – 27% – say they’ll keep working until they no longer can. That’s not a firm plan, is it?

It’s not as if we’re neglecting to save for our retirement – the majority of respondents (79%) said they had a pension, and nearly half have other plans in place too, to supplement their retirement income. But still nearly two-thirds of respondents aren’t confident that they’ll have enough money to live on when they retire.

There is also uncertainty about whether mortgage repayments and family dependants will be a factor in retirement, which will obviously have a bearing on the amount of income needed. Our survey found that more people expect to be paying off their mortgage in retirement in the future, compared with those who are already retired and still paying a mortgage. Another 20% of respondents don’t know whether or not they will have paid off their mortgage by the time they retire.

An additional finding was that while only 9% of respondents expect they will still have dependants living with them when they retire, 16% of those already retired actually have dependants living with them – perhaps this indicates a certain level of optimism on the part of those who haven’t yet retired!

In all this uncertainty, there’s one thing for sure: the whole concept of retirement is in a state of transition as the average age of retirement is set to rise. But it’s not all bad news by any means: there are advantages to working for longer, and there are options to consider if you’re not sure you will have enough to retire on and want to take action.

Useful links

Find out how your retirement plans compare with the respondents to our long-term savings and retirement survey here.

Work out how much money you will need to fund the retirement you want with our interactive retirement calculator.

The content of this article is for information purposes only and does not constitute financial advice. We do not offer financial advice. If you’re unsure as to the suitability of a product you should seek advice from a Financial Adviser. You may have to pay for this advice.

You should also be aware that in some investment conditions and depending on the savings product you have chosen, you may get back less than you have paid in.

*The Foresters Friendly Society Long-Term Savings and Retirement Survey was carried out during August 2015 in partnership with Mature Times and completed by 1,489 people.