Cash or shares – it’s time to place your big Isa bet

As new tax allowance kicks in, we look at the best options for savers

THIS month, all adults across Britain have been given a new Isa allowance, meaning they can save or invest a further £20,000 without incurring capital gains tax or tax on income. It is sensible to shelter this money as early as possible to give it most time to grow. It is also important to ensure you are getting the best value for money if you are choosing to invest your Isa since fees and charges will eat into your returns.

This is an exceptional time, and with markets hugely volatile and many people concerned about their jobs and what the future will bring, it would be easy to forgo this year’s Isa allowance altogether. But financial experts say it is worth making decisions as soon as possible.

‘If you don’t use it, you lose it,’ says Laura Suter, personal finance analyst at wealth manager AJ Bell. She says that rather than being ‘overcome with fear’, investors should take sensible steps to ensure their Isa investments are well positioned for the long term.

Many fund managers believe that now is the time to be looking for investment opportunities rather than running away from the market – so it could be a mistake to leave making your Isa investments until later in the tax year.

Jeremy Podger, manager of investment fund Fidelity Global Special Situations, says: ‘There are many shares that have gone down more than their fundamental outlook would warrant.’

He believes there are investment opportunities in defensive sectors such as utilities and pharmaceuticals, and in more economically sensitive stocks that have ‘fallen so sharply that they have rebound potential even before full economic recovery is evident’.

Whether you are willing to recommit to the stock market now, or would rather return in a more gradual fashion, picking the right Isa provider will help achieve your financial goals.

Should I stick with safe option for now?

GIVEN sharp market falls, it’s tempting to choose a cash Isa instead of investing in stocks and shares with this year’s allowance. But with the Bank Base Rate at an all-time low of 0.1 per cent, your money is likely to actively lose value in real terms thanks to the effect of inflation, and you would miss out on any potential stock market recovery.

Justin Modray, founder of Candid Financial Advice, says one option for the nervous is to move money into a cash Isa now, with the intention of moving it into investments later, when you feel more comfortable.

You can transfer money between cash and stocks and shares Isas whenever you want, as long as you follow the proper process, and the Isa you choose accepts transfers in. However, the process will be slow, and you may miss the right time to invest.

Modray adds: ‘The upside is that you’ll receive some interest on the cash in the meanwhile, but transinside could take a couple of weeks or more, reducing your ability to act nimbly.’

Instead, he suggests more nervous investors should consider a strategy whereby they transfer their cash into an investment Isa and either hold it as cash and put it into investments when they feel ready – or set up automatic instructions so that they invest regularly.

By doing this, you’re unlikely to earn interest on the cash sitting the investment Isa, but, as Modray says, at current rates that is ‘no great loss’.

The best wealth platforms to choose

WHETHER you are happy to invest now, or rather do so gradually, the fees for your stocks and shares Isa can make a difference to your overall returns. So whichever investment strategy you opt for, you need to consider how you will be charged and choose your provider accordingly.

Richard Eagling is head of pensions and investments at financial data scrutineer Moneyfacts. He says: ‘There is a wide choice of online investment platforms – all with differing charges and fees, which makes selecting the right one a potentially difficult task.’

He says there is no ‘one-size-fitsferring

all’ cheapest option for everyone. He adds: ‘The key is to choose an investment platform that suits your portfolio and investment experience. There are many different pricing structures, so investors will have to do some homework as to which is the cheapest or best value depending on the size of their investments and how often they anticipate trading shares, funds or bonds.’

The fees to watch out for include annual platform charges, fund and share dealing fees and charges levied for other services such as regular investment, dividend reinvestment and exit fees. If you don’t want to pick your own investments, you could also consider a ‘roboadviser’ as an alternative, which provides a ready-made portfolio for a relatively low fee. If you are planning a regular investment strategy to get your Isa cash back into the market, you need to ensure such an option is available.

How the different providers stack up

THE annual fee for a platform can be charged on a percentage basis, or as a flat charge, so it’s worth starting by working out which will be cheaper for your circumstances.

Hargreaves Lansdown, for example, charges 0.45 per cent of the value of Isa portfolios, up to £250,000, and 0.25 per cent for the next £750,000.

Rival Willis Owen is slightly cheaper at 0.4 per cent for the first £50,000, and then 0.3 per cent for the next £250,000 and 0.15 per cent above this.

Interactive Investor charges £9.99 a month, with £7.98 of this credited against dealing fees.

Investors should also look at the cost of selling and buying funds and shares. In many cases this is free, but Interactive Investor charges £3.99 for each fund purchase, and £7.98 for fund switches, meaning it could be an expensive choice for anyone who changes their investments regularly.

Modray, at Candid Financial Advice, says you should also consider service and features offered, as these can differ.

He adds: ‘If you want to invest in investment funds, Cavendish Online and Close Brothers are likely to be the cheapest with an annual platform charge of 0.25 per cent and no fund dealing fees.

‘Cavendish Online also offers suggested investment portfolios which may prove helpful to novice investors.’

He says that Bestinvest – which charges 0.4 per cent a year for those with up to £250,000, reduced to 0.2 per cent above this level – offers ‘a good range of investment research in return’, while Hargreaves Lansdown ‘rates above average for service if you’ll need handholding and guidance’.

If you want to trade shares (including stock market-listed investment trusts), as well as investment funds, you will have to factor in dealing costs.

Halifax Sharedealing-owned iWeb, owned by, is among the cheapest options at £5 per deal, whereas most competitors charge around £10. Bestinvest is also competitive at £7.50 per share trade.