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How to get the most out of your ISA

Each tax year, UK savers are given an ISA allowance. This enables us to shelter our savings from tax, which means we can keep more of our returns. This year’s ISA allowance is £20,000 but it appears amid a very different savings landscape.

We now have:

  • A personal savings allowance of either £500 or £1,000 depending on how much income tax you pay.
  • A flexible ISA which can be topped up and withdrawn from in the same tax year.
  • Record low interest rates, the base rate is now 0.25%.

In light of the changes we’ve seen so far this year, here’s how to make the most of your allowance:

1. Invest in a Stocks & Shares ISA

Inflation has recently increased to 0.6% and leading economists now think that it will average 2.6% over the next five years *. That means you need to achieve returns of 2.6% to keep the real value of your money the same.

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2. Diversify your portfolio

Protect yourself against market volatility by diversifying your investments. Gain exposure to a global range of asset classes including equities, bonds and commodities. This can be achieved by investing in Exchange Traded Funds.

3. Pick the right provider

Depending on your own level of competency with investing, you may choose to select your own investments. However, if this is something that you are not comfortable with, you could choose a discretionary account. A smart, cost-efficient way to take this further, would be to choose a discretionary service that gives you a portfolio tailored to your investor profile.

4. Avoid High fees

Nothing erodes the value of your investments over time like excessive annual fees. By switching to a lower cost provider the value of money left in your portfolio will be greater year on year and as a result will have a greater compounding effect over the long term leading to greater returns.

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* Source: Bloomberg – 0.6% is the UK IMF CPI yoy growth, and 26% is the 5 years breakeven inflation as of (07/10/16).

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