Should I save in a Stocks and Shares ISA?
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I have saved regularly into cash ISAs over the years and have built up about £300,000. I’ve read a couple of articles that say that Stocks and Shares ISAs are better. Should I move my money or would it be safer to keep it where it is?
Richard Barker of Smith & Pinching responds:
There are several factors to consider before deciding how your money can best work for you – including your age, circumstances, attitude to investment risk and what other forms of savings and investments you may have, such as pensions. This is the perfect time for you to get advice from a Chartered Financial Planner to determine what you want to achieve with your money in both the short and the long term, and to plan your savings and investments accordingly.
Having said that, ISAs are usually a good starting point for most people who have money to put aside for the future, because growth is generally tax-free. Cash ISAs grow through the addition of interest to the money in the account. Access to your money is relatively simple, although some accounts will have a fixed term and are potentially subject to a penalty if you take your money out early. The most critical issue with Cash ISAs is that the interest rate you are getting is likely to struggle to keep pace with inflation, which means that your money loses value in spending terms over time.
The safety of your Cash ISA savings is limited. Institutions providing Cash ISAs are usually covered by the Financial Services Compensation Scheme which guarantees the safety of your savings up to £85,000 per institution, so if you have all your Cash ISA savings with one provider, you won’t be fully covered.
A Stocks and Shares ISA does indeed have the potential to give you above-inflation returns but there are no guarantees. A Stocks and Shares ISA provides returns in the form of dividends and investment growth, but these will depend on market forces. However, you can tailor your ISA portfolio to suit your attitude to investment risk and any specific preferences (such as ethical investments). Remember: investing should be about growing your wealth in the longer term, timing withdrawals carefully to maximise your gains.
For most people, a mixture of both Cash and Stocks and Shares ISAs makes sense. I recommend that you get independent advice to build a financial plan that includes what savings and investments are right for you.
Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
For more information, please visit www.smith-pinching.co.uk