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.
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.
* 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%