Con­sider an ISA as the ef­fi­cient way ahead

Kentish Gazette Canterbury & District - East Kent Property - - MONEYLIVING -

With Chan­cel­lor Ge­orge Os­borne’s re­cent in­tro­duc­tion of the Per­sonal Sav­ings Al­lowance due to come into ef­fect in April, savers can now earn up to £1,000 in tax-free in­ter­est on sav­ings.

But what can you do to max­imise your sav­ings pot? When con­sid­er­ing what should be in­cluded in a well­rounded sav­ings port­fo­lio, savers would do well to look to­wards ISAs.

An ISA, or In­di­vid­ual Sav­ings Ac­count, is one of the most tax­ef­fi­cient ways to save or in­vest, but which ISA prod­uct should con­sumers con­sider when ex­plor­ing their sav­ings op­tions – a cash ISA or a stocks and shares ISA?

The an­swer to this ques­tion, which will pretty much de­ter­mine your prod­uct se­lec­tion, de­pends on your ap­petite and aver­sion to or com­fort with risk.

Cash ISAs are sim­i­lar to stan­dard sav­ings ac­counts but with one key dif­fer­ence: the in­ter­est you earn is tax-free up to the an­nual ISA al­lowance – £15,240 for the 2015/16 tax year.

Stocks and shares ISAs en­able in­di­vid­u­als to put their money into a range of in­vest­ments with the ben­e­fit of also be­ing tax-ef­fi­cient; the 2015/16 tax al­lowance thresh­old is also £15,240.

But which one should savers choose? Or back to my orig­i­nal point: how much are you will­ing to risk?

As with tra­di­tional in­vest­ment in Fi­nan­cial fact: House prices leapt by 9.7% year-on-year across the UK in Oc­to­ber to reach a record high of £205,240 on av­er­age, ac­cord­ing to Hal­i­fax. stocks and shares, there is al­ways the po­ten­tial that the value of your in­vest­ment may de­crease.

Con­versely, your in­vest­ments could in­crease and gain a higher re­turn than the cash ISA, given cur­rent in­ter­est rates.

If you are con­sid­er­ing making a stocks and shares ISA part of your sav­ings port­fo­lio you should fac­tor in the longer time pe­riod as this is when th­ese par­tic­u­lar ISA prod­ucts per­form bet­ter – usu­ally about five years.

While in­ter­est rates are his­tor­i­cally low on cash ISAs, the value of your in­vest­ment is guar­an­teed to in­crease.

And guar­an­tees or cer­tainty are a com­mod­ity in which the stock mar­ket does not deal. A fur­ther ad­van­tage of cash ISAs is their rel­a­tively short-term na­ture and ease of ac­cess, thereby pro­vid­ing the op­tion of cash­ing in if re­quired.

As with all de­ci­sions, be­ing com­fort­able with your choice and the pos­si­ble out­comes is key. With the var­i­ous ISA prod­ucts on of­fer, adding to your sav­ings pot needn’t be a risky busi­ness, but you can tread a riskier path if you choose.

Are you with the right bank?

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