Just starting to save. Is ISA still the best route?

Spadez

Hi,

Very quick question. I am 24 and looking to start saving. I want to save around £2500 a year on average without dipping into it at all (or at least, for a couple of years).

Is an ISA my best option or instead to the current saving accounts such as first directs 6% account actually make more sense (and money).

Thank you for any advice or feedback.

James

tomleafs

An ISA is just a tax free wrapper that protects your returns from tax. However you should compare both ISA and non-ISA alternatives before making a decision on where to put your money.

For example; if a cash ISA offers 2% (which won't be taxed) but First Direct offers 6% gross or 4.8% net (after tax) then you will still be better off with First Direct as a 4.8% return is better than a 2% return.

If you were looking to invest in stocks then you may as well do it via a stocks and shares ISA as it will ensure the investments inside the ISA are protected from future taxation (unless the rules change).

Hopefully that helps -

oldtoolie

The First Direct 6% is a good option. It only works for a year and then the money drops into a low interest account. So do one each year and put the result into an ISA at the end of each year. I think you would need a 1st Direct current acc.

C_Mababejive

I will not be investing in cash ISAs this coming financial year and i have rebalanced some existing cash ISAs to other investments. I think we will continue to see interest rates held low and savers losing money hand over fist.

jackyann

Just to remind you that (AFAIK) the First Direct 6% is on a Regular Saver only, with a maximum of £300 per month

If you are investing a regular sum it is very good, but if you have a lump sum, you need to "drip feed" it into the account, and the approximate overall interest works out at 3%.

It is also worth remembering that unless you withdraw it, the ISA stays tax free forever (unless/until Govt. changes the rules)

Broadly, long-term it seems worthwhile to take out the maximum per annum on an ISA before looking at others. However, if you know that you are going to withdraw it in the next few years, you may well be better with some of the savings accounts.

Ximian

C_Mababejive wrote: »

I will not be investing in cash ISAs this coming financial year and i have rebalanced some existing cash ISAs to other investments. I think we will continue to see interest rates held low and savers losing money hand over fist.

Likewise, ISA rates were so low this year that I never bothered topping up my ISA. I added money to my S&S ISA which has been averaging 10% growth this past year. Had a letter from Santander last week that my cash ISA rate is decreasing from 2% to 1.5%. I don't see the ISA rates or interest rates increasing any time soon. I heard that next year spring we might see an increase.