Consider an ISA as the efficient way ahead
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?