Do ISA's deserve to be slated?

former_student

I was a fan of ISA's and on another board I asked a question regarding what would be a good ISA to transfer my savings to, I got the following response.

What ISA's make will hardly be material amount of money that is going to make a significant impact. Why have a poxy 6% when you can get low risk bonds, fixed interest through a stock and shares ISA that give you far better returns than 6%. Being well off and fincncially secure is not all about how much you earn, how much you save, its also to do about how much you spend as well.

Did this poster have a point and are ISA's just a waste of time?

kingmonkey

ISA is a tax free wrapper which may contain bonds, shares, cash savings.

I think hes comparing saving with investing, which all comes down risk.

si1503

I don't think he/she knows what they are on about. He/she advising on opening up a stock and shares ISA and investing in low risk (corporate) bonds for a better return than cash at 6%, however, the current average 1yr corp bond fund performance is 0.4%, even UK high risk bonds are only 4.7%. (Figures courtesy of trustnet)

DawnW

ISAs are simply a tax free way to save some of your money. I think that cash ISAs are a good place to start saving, as they are tax free, many are instant access, and your money is safe. If you want to invest in stocks and shares etc you can also use that part of your ISA allowance to do so (again, tax free), but your money is not guaranteed. They tell you something like 'you may get back less than you invested'. I guess it depends on your attitude to risk, your tax situation, how much you want to save, etc (ISA limits currently 3000 cash, 4000 equity). If you feel that equities are not for you, then there are lots of savings accounts out there that pay decent rates (A&L Direct saver, Icesave etc) but you will have to pay tax on the interest unless you are a non tax payer and fill in the appropriate form which they will supply you with. Also National Savings Index linked certificates, which are starting to be talked about on here as well, are also tax free, but you do need to tie your money up for a while. It all depends on your situation and preferences, but for tax payers, cash ISAs are a good place to start, and if you don't use your 3K annual allowance, you lose it.

amcluesent

>Did this poster have a point <

I'd be wary of taking advice from anyone whose grasp of English grammar was so poor.

baby_boomer

Cash ISAs are a good way of preserving capital and the interest rate will tend to beat inflation.

Everyone should have some cash savings, so why not in cash ISAs?

GCH888

former_student wrote: »

Did this poster have a point and are ISA's just a waste of time?

I'll go out on a limb here and say this poster does have a point to a certain degree. Afterall we are talking about earning an extra £50 to £60 a year from the ISA (and this is if you put in the maximum £3000 right at the start of the tax year). So that's an extra £5 a month? I might as well leave a 5% tip rather than the normal 10% service charge in restaurants and save more cash that way.

However I would rather waste two hours sitting in Barclays waiting for my turn to open an ISA account than give that tax back to the government.

So I agree with most people here - ISAs are the first step in saving money. And an extra £50 - £60 from an ISA is better than being called a misery git by half the restaurant staff in West London.

former_student

I'm inclined to agree with most of the posters here, my question at the time was in relation to transfering my £10,000 to the highest paying ISA. I have been very interested in stocks and shares for quite some time now but I have no idea where to begin. Some have mentioned bank stockes and shares as part of an ISA but I have heard people on these boards criticise them so I'm not sure what is the best way to get involved in them.

lisyloo

I'll go out on a limb here and say this poster does have a point to a certain degree. Afterall we are talking about earning an extra £50 to £60 a year from the ISA (and this is if you put in the maximum £3000 right at the start of the tax year). So that's an extra £5 a month?

Well, I have £22K in mine not £3K, so I think you need to bear in mind that some people have contributed over a long period of time.

As a 40% tax payer I think ISAs are great.

I do think there is a valid point about savings vs investing.
Cash ISAs are a very safe form of savings which are useful for your emergency cash. However looking at the long term you also need to supplement your portfolio with some more adventurous investments.

Playing too safe is actually a RISK and it can cost you big time over the long term.
However everyone needs emergency savings and I can't think of a better place if you are a taxpayer.

lestamunda

Also, ISAs cannot be put into a Trust, which means they must go direct to the deceased estate.

They must be sole name, again making sure they go into the estate.

This can create the need for probate, when normally with joint accounts etc etc you would be able to by-pass.

si1503

GCH888 wrote: »

I'll go out on a limb here and say this poster does have a point to a certain degree. Afterall we are talking about earning an extra £50 to £60 a year from the ISA (and this is if you put in the maximum £3000 right at the start of the tax year). So that's an extra £5 a month? I might as well leave a 5% tip rather than the normal 10% service charge in restaurants and save more cash that way.

However I would rather waste two hours sitting in Barclays waiting for my turn to open an ISA account than give that tax back to the government.

So I agree with most people here - ISAs are the first step in saving money. And an extra £50 - £60 from an ISA is better than being called a misery git by half the restaurant staff in West London.

1) Higher level tax payers will save more.
2) Thanks to the wonders of culmative interest, over the years those savings will increase further.

The reality is you are getting better returns on your money, the fact you could be saving that money elsewhere is totally irrelevant. It makes total sense to use your full ISA allowance every year, be it in the form of a maxi or 2 minis.