ISAs: It's Time To Bust The Myths
ISA season is upon us. But would your money do better in a cash ISA or a stocks and shares ISA?
The choice can be confusing, and it is no surprise that some people choose to steer clear rather than help their money to go further. But ISAs, or individual savings accounts, are not as complicated as they may seem.
To help cut through the noise and make ISAs easier to understand, UBS SmartWealth, the online investment service from the world’s largest wealth manager[1], has set out to bust a few common myths.
1. Interest rates are so low there’s no point in opening an ISA
Despite the prospect of interest rate increases from the Bank of England this year, cash ISAs (tax-free savings accounts) are offering lower interest rates than in previous years. To maximise returns, you could consider putting some of your money into a stocks and shares ISA. This is a tax-efficient investment account which allows you to put your money in a range of different investments.
Of course, this option comes with greater risks, but there is the potential for greater rewards. Recent research has shown that an overreliance on cash ISAs costs UK savers an average of £2,000 over five years.[2] Savers should seek advice to manage their risk profile and learn how best to split their ISA allowance.
2. I can only have one ISA at a time
You can open one cash ISA and one stocks and shares ISA every year, up to a total value of £20,000. That means there is plenty of flexibility when it comes to what to do with your money.
However, beware of distributing money thinly over different ISAs each year. This risks leading to a patchy approach to your investing and savings, and a possible overexposure to similar stocks or strategies.
3. Once my money is in an ISA, I can’t transfer it
Transferring your money from a cash ISA to a stocks and shares ISA, or vice versa, is incredibly easy.
An ISA provider can handle this for you, without you even having to withdraw funds. Savers should be thinking about transferring ISAs at regular intervals to ensure they are not spread too thinly across a multitude of different products and providers.
4. I don’t have £20,000 so shouldn’t bother opening an ISA
You don’t need to deposit the full ISA allowance to open an ISA. You can still reap the benefits with a smaller amount of money. The £20,000 ISA allowance just sets the maximum which you can save within the tax-free wrapper each financial year.
5. Stocks and shares ISAs are only for experienced investors
Stocks and shares ISAs may appear more complicated and risky than cash ISAs, and the choice of investments can sometimes appear overwhelming. But don’t let that put you off.
As with any financial decision, talk to an advisor or someone you trust to understand more about how you might use a stocks and shares ISA. Online investment platforms can be a great option for those just starting out.
Remember: ISAs are a bonus.
They will enable you to avoid tax on a portion of the money you are investing or saving, ultimately, getting you closer to that holiday, new car or slightly more comfortable retirement.
The price and value of investments and income derived from them can go down as well as up. You may not get back the amount originally invested.
UBS SmartWealth is the online investment service from UBS Wealth Management, the world’s largest wealth manager[3]. It offers a fully tailored approach to achieving your goals and ambitions.
Find out more here about how UBS SmartWealthcan help you.
[1] The Scorpio Partnership’s Private Banking Benchmark: http://www.scorpiopartnership.com/opinion/blog/sun-rises-east-ubs/
[2] Propriety research conducted by UBS SmartWealth with Censuswide, December 2017. Based on responses from 1,000 co-habiting couples, 75% with £50k+ investable assets, and 25% with £250k+ investable assets.
[3] The Scorpio Partnership’s Private Banking Benchmark: http://www.scorpiopartnership.com/opinion/blog/sun-rises-east-ubs/