When it comes to your finances you pride yourself on one thing, you save. Not only do you save but you do so using your ISA allowance. You manage to siphon off a proportion of your salary each month into an ISA account and that is a great habit but are you using a cash ISA or a stocks and shares ISA?
Why we love cash ISAs
The cash ISA is the most popular type of ISA in the UK and that’s unsurprising. Historically you could be getting 4% interest each year, not have to pay tax on those returns and it was in trusty cash so the value was never going to drop.
Fast forward to 2016 and that cash ISA you started with 4% interest could now be offering 0.5% and since the Bank of England cut interest rates again on 4 August some cash ISA providers are offering 0% returns.
Not only could you be getting 0% returns but that also means you’re not getting any tax benefit. You won’t be taxed on your cash if it doesn’t get a return. All of a sudden that fantastic habit of saving each month isn’t doing as much for you as you once thought.
The stocks and shares alternative
If you are managing to save a little each month it might be time to consider a stocks and shares ISA. If you’re used to the cash ISA you might be worried that the stocks and shares ISA is expensive, complicated and overly risky. Even if the interest rate on your cash ISA is minimal at least you know how much it will be worth at the end of the year.
But the wealth management industry has changed a lot over the last few years as the digital wealth managers, or robo advisors
Whilst it is true that the value of your investment may go up as well as down history shows us that over the medium to long term investments outperform cash. Whilst interest rates are historically low you might be pleasantly surprised to see what an investment portfolio could offer you. The real question is whether you can afford not to invest your ISA allowance?