Income ISA'S

morgan505

Our "savings" are currently in a Halifax Web Saver getting 5% interest tax free as I am not a tax payer. However my husband is about to retire & we need to get a monthly income from our "savings" & his lump sum pension pay out, he will still b:T e a tax payer. We believe Maxi Income ISA's may be our best bet? We will be in a position to purchase 2 x £7000 before March & the same in April (ie one each for each tax year). Please can any one advise on any reputable company's, the best rate of interest (we would only want to go medium risk) & what monthly return £7000 is likely to provide? Thanks Doidy

dunstonh

Please can any one advise on any reputable company's, the best rate of interest (we would only want to go medium risk) & what monthly return £7000 is likely to provide?

MAXI ISAs dont work like that.

You invest the money in a way that is suitable for your risk profile. Then you either have the choice of taking a fixed regular withdrawal (not available with all providers) or taking the natural income (which tends to be quarterly and variable).

A low risk portfolio built for income could see a spread between -10% to +15% a year in performance with the aim to achieve 7-10% p.a. average over the long term.

Whilst it involves investment risk, over the long term it is arguably lower risk than leaving it in a savings account. If you draw the 5% from the cash ISAs as income, then the value of your Cash ISAs is going down in real terms by 4.1% a year (current rate of inflation). So, you need the investment returns to give you the potential to beat that.

Stocks and Share ISAs have tens of thousands of places you can invest and you would use a spread of these to get what you need. The transaction itself is very easy if you know what you are doing but can be daunting if you dont. You need to decide if you have the knowledge to build your own investment ISA to suit your risk profile and needs or whether its better to get an IFA to do it for you.

EdInvestor

First of all you'll be best to open your ISAs at a discount broker like Hargreaves Lansdown which will rebate the charges.

https://www.h-l.co.uk

Then you have to decide what to invest the money in.You can get income from three types of investments :

equity income funds - dividends from shares
commercial property funds - rental income paid out as dividends
corporate bonds - interest payments on the debt the companies owe

You may perhaps fancy a mixture of these?

Note that if you are basic rate or lower rate taxpayers, you can receive dividend income from equity funds with no tax to pay even if you invest outside your ISA (the divis come with a tax credit which pays the tax for you ) .So you may wish to use your ISA for the property and bond funds, and invest in the equities direct.

As a general rule of thumb you can get 5% income from capital on a ressonably safe basis.

dunstonh

With respect, sending someone down the DIY option when they dont know what they are doing could turn out to be a very expensive mistake.

It is clear morgan doesnt understand MAXI ISAs and the options and going DIY without knowing what you are doing could lead to all sorts of mistakes being made. Especially as inexperienced investors tend to pick on past performance and usually end up picking investment funds above their risk profile. That then usually leads to them panicking when the stockmarket crashes and drawing the money out at a loss stating they will never invest in the stockmarket again. When in reality, it wasnt the stockmarket that was the issue but the fact they had picked higher risk funds and not lower risk ones.

Going DIY is good for the people that know what they are doing and are willing to spend the time researching and making the choice and accepting the consequences of their actions.

If you dont want to spend the time doing it then getting advice from an IFA is the best option. Even though it may cost you a little.

Current FSA figures (for the 6 months to December 06) show that the average commission on ISAs taken by IFAs was 1.8% (maximum typically 3%). Get a low cost IFA working to that 1.8% average and the cost of advice is £252 commission on an investment of £14,000.