Are ISAs really that good?

AviatorEGHH

Hi everyone,
At the moment I am fortunate enough to have some money saved and sitting in Cash ISAs. I haven't used fixed term ISAs because I am constantly hoping I will find a better way of investing and will want to move or access the money somehow.
I can't help but feel I am losing money...am I wrong???

Interest rates are bad as we know but more importantly, even if they improve, they will never be higher than the rate of inflation. Therefore, my saved money is losing value every year.

So, why is MSE so pro ISA???
Should I be looking at Stocks and Shares ISAs? Using my savings as a deposit on a buy-to-let property?
I have no debts or loans but I have a mortgage running at about 1.3% and always manage max overpayments to reduce the term.

Someone out there must have a good suggestion for me. I'm lost...HELP!

Thanks!!

Wassa123

ISAs are a tax haven:
You can get tax free interest on cash (not great these days as rates are low and theres now the Personal Savings Allowance).
You can trade shares without paying capital gains tax.
You can cash SAYE shares without paying capital gains tax.
You can claim dividends tax free.


All of these are dependent on you having enough in there to make it worth it. If you're young with not a lot of savings/investments then they'll seem pretty pointless and you can probably earn more interest in a current/savings account.

However for the older generation with hundreds of thousands of savings and investments, ISAs are amazing.


Whether you want your savings in cash and/or invesments is a personal choice. Personally I have my emergency fund in a cash ISA, and my extra money in a S&S ISA.


Cash ISAs these days you'd be lucky to get more than 1%.
Property can yield you more, but your money isn't quickly accessible and you become a landlord with all it's responsibilities and risks.
Stocks can yield you more and is fairly accessible within a few days, and can be profitable but it can go up/down quickly and sometimes crash to 50%.

AviatorEGHH

Thanks for your reply.
Those are pretty much the directions in which I have been heading.
I have been looking at S&S ISA, and have one available to trade with.
Next problem...what to buy?
I have been think FTSE 100. For relative safety. However, there appear to be thousands of FTSE 100!!!8217;s to choose from. How do I pick the right one. Do I fill an ISA with one FTSE 100 fund? Do I buy several different ones?
So many questions and so few ideas...

Zanderman

Why not just use, er, savings accounts?

Rates aren't great but there are lots that have much much better rates than ISAs.

AviatorEGHH

Mainly because of the interest vs inflation issue.

S&S Isa's seem to be the best way of not devaluing savings, however they come with risk...

Wassa123

I think you need to read a book .

Personally I started with "Investing for Dummies".
I've started reading Tim Hales "Smarter Investing" which is the one everyone raves about. The general gist is that you want diversification across companies, sectors, countries, shares, bonds, property, etc.


I don't deal with individual shares, as I don't have time to research/deal them better than the average investor. I'm happy to invest in mutual funds, which is a collection of share or indexes run by a fund manager/company who takes a small annual fee (~0.07-1.5%) and knows much more than I could ever do.

FTSE100 is the top 100 UK companies is is a good start, though you may want to think more global.

The easiest way to start is Vanguards Life Strategy funds, it's a collection of all the indexes from around the world (US, UK, Europe, Japan, China, Asia, Emerging Markets, etc) and is great for diversification. I believe the fees are 0.15% for the ISA and 0.22% for the fund. The good/bad thing about this fund is that your returns will be "Average" as you will own a tiny bit of thousands of companies. No one hit wonder/failure will cause you much of a change.

Theres a whole debate about passive investing (investing in indexes and collecting the average) vs active investing (trying to beat the average by stock picking, either yourself or via a fund manager who knows what hes doing) but the choice is yours.

eskbanker

AviatorEGHH wrote: »

I have been looking at S&S ISA, and have one available to trade with.
Next problem...what to buy?
I have been think FTSE 100. For relative safety. However, there appear to be thousands of FTSE 100!!!8217;s to choose from. How do I pick the right one. Do I fill an ISA with one FTSE 100 fund? Do I buy several different ones?
So many questions and so few ideas...

One of the key aspects of starting investing is to diversify to minimise risk - at its simplest this means not to put all your investible wealth into the shares of one company as putting all your eggs in one basket risks complete loss.

Collective investments such as funds are an obvious solution to that problem but again diversification is key, so an index tracker that's limited to one small market and is heavily dominated by certain large-cap companies in a small number of sectors in one geography isn't a good idea (unless part of a much larger portfolio, and even then FTSE100 is generally seen as a poor choice).

There are various global multi-asset fund options which overcome such limitations by diversifying widely - Vanguard's LifeStrategy is a popular choice but others are available from the likes of HSBC, L&G and Blackrock.

Read up on how to start investing via sites such as https://www.moneysavingexpert.com/investments/, http://diyinvestoruk.blogspot.co.uk/p/basics.html and Monevator, plus all the newbie investor threads on this very forum....

C_Mababejive

They key is tax. Who wants to pay tax? Not me. I do all i can to keep my tax bill small.

Imagine a situation where you retire. The current personal allowance is about £12,500,,cant recall without looking it up.

If you had a load of money invested in ISAs over the years you could take 12500 from your pension pot (if you have one !) and then top up with money from your ISA. Result ? No tax to pay.

When your state pension kicks in,well adjust accordingly.

No ISA money? fine,,keep paying tax

Dazed_and_confused

If you had a load of money invested in ISAs over the years you could take 12500 from your pension pot (if you have one !) and then top up with money from your ISA. Result ? No tax to pay.

Or you could take £12,500 (£11,850 in reality at the moment) from your pension pot and then top up with £6,000 interest from your non ISA savings accounts. Result? No tax to pay

masonic

C_Mababejive wrote: »

They key is tax. Who wants to pay tax? Not me. I do all i can to keep my tax bill small.

Imagine a situation where you retire. The current personal allowance is about £12,500,,cant recall without looking it up.

If you had a load of money invested in ISAs over the years you could take 12500 from your pension pot (if you have one !) and then top up with money from your ISA. Result ? No tax to pay.

When your state pension kicks in,well adjust accordingly.

No ISA money? fine,,keep paying tax

There is no tax to pay when you take money out of any savings account, ISA or non-ISA.

And if you are just taking enough out of your pension to use up your personal allowance, you have the starting rate for savings (£5000 at 0% tax) and personal savings allowance (£1000 at 0%) covering interest. That's £6000 interest tax free, which at current rates would allow you to have over £200,000 in savings and not pay tax.

That's more than most people should consider holding in cash.

kidmugsy

AviatorEGHH wrote: »

Interest rates are bad as we know but more importantly, even if they improve, they will never be higher than the rate of inflation.

Why on earth not? They often have been in the past.