Cash ISA vs Shares ISA given current interest rates

peetza_saver

Hi all,

I have £18,000 I wish to invest in an ISA.  I am being advised to put it into a managed stocks and shared ISA, however there are the usual fees associates with this.  The fees are £800 per year plus around £200, so £1000 in total.
My view is that I would be better to invest this £18,000 into a cash ISA whilst the rates are so high, and then look at a stocks and shares ISA next year.  At least after year 1 I would be almost guaranteed £19,000 at the end of it, whereas with a Stocks and Shares ISA I am 'starting' with £17,000 and it would have to be a very good growth rate to achieve £2,000 in the first year.

Am I missing something?

eskbanker

You're missing at least two things - one being that you shouldn't be paying exorbitant fees like that for an investment!

However, the other is the more important, i.e. what is it that you're trying to achieve with the money?  You need to have some sort of idea about objectives, and if you're considering investing rather than saving, then it should be for the long term, and returns over one year aren't likely to be material....

Edit: re "I am being advised", have you raised your concerns/thoughts with the adviser?  Assuming you're referring to formal financial advice (although this would be unusual at this level), they'd have full sight of your financial circumstances, including not just objectives, but appetite for risk, other assets, etc, etc, which all need to factor into your plan.

peetza_saver

@eskbanker, Thank for you the reply.  Yes, one of the reasons I asked the question is because the fees are so high.  I don't think I was very clear in my question after reading your response, my conflict is not one of investment over saving in the long term, it is merely in the current situation would it be prudent to have that money in a cash ISA for 1 year and then look at moving into a stocks and shares ISA when perhaps the cash ISA rates have gone down?

peetza_saver

I should also point out an important mistake in my previous message.  The £800 is an initial charge, then there is an annual charge of 2% for ongoing advice and costs.

VXman

Sounds a rip off to me.

Just as an example.

Invest in a life strategy fund at Vanguard investor 0.22% . Account fee 0.15% 

A managed fund with Vanguard - 0.60% plus the 0.25 account fee.

£1000 fee would be OK if they can deliver  at least 10% growth, that would give you £800 profit. However, I think that's a tall order.. in present economic climate...... But you could get a guaranteed £900 profit in a cash ISA if you are quick. 

Hoenir

While not the cheapest option. You may be better off using a robo advisor initially. If investing the money is your objective and while you start the learning process of managing your own portfolio. 

There's a few to choose from 

Moneyfarm

Nutmeg

Investengine

Wealthify

Clim8

All will tailor the investment portfolio to your own personal risk appetite. 

Tonski

As mentioned previously those fees are very high. Around 80% of managed funds don't beat the market so if you're investing for the long term, just buy a market weighted ETF on a platform with low fees and you'll more than likely do a lot better than the managed fund with high fees. I use Invest Engine and there are no fees for their ISA. You can't go too far wrong with a simple ETF like one of these and the fees are so much lower:

 FTSE Developed World UCITS ETF - Accumulation (vanguardinvestor.co.uk)
FTSE Global All Cap Index Fund - Accumulation (vanguardinvestor.co.uk)

Tonski

This is quite an interesting watch:
Why Holding Cash Now is a Terrible Idea (if you ever want to retire) (youtube.com)

jimjames

peetza_saver said:

@eskbanker, Thank for you the reply.  Yes, one of the reasons I asked the question is because the fees are so high.  I don't think I was very clear in my question after reading your response, my conflict is not one of investment over saving in the long term, it is merely in the current situation would it be prudent to have that money in a cash ISA for 1 year and then look at moving into a stocks and shares ISA when perhaps the cash ISA rates have gone down?

Cash and investments perform differently regardless of what current interest rates are.  The markets had a good day yesterday and some of my investments rose over 3%. That's on a single day as well as annual dividends. Cash will get you between 5% and 6% per year but the capital won't grow and will guarantee you have your capital at the end of the year. You might lose out more with the growth of investments over that year or you might not but if you want to invest long term it's probably better to go sooner rather than later. Although the company you've chosen with such high fees might not be the best choice.

Albermarle

peetza_saver said:

@eskbanker, Thank for you the reply.  Yes, one of the reasons I asked the question is because the fees are so high.  I don't think I was very clear in my question after reading your response, my conflict is not one of investment over saving in the long term, it is merely in the current situation would it be prudent to have that money in a cash ISA for 1 year and then look at moving into a stocks and shares ISA when perhaps the cash ISA rates have gone down?

As nobody can see into the future, you can never know what is the right decision until after the 12 months is up.
Another possibility is to save in a fixed term ISA. You can fix now for 3 years at 5.35%. Probably this will be higher than inflation for some of the time, which will be unusual in recent times.
Of course if you invested it for 3 years it might go up a lot more than that, or less.....
As others have said if you do invest it you need to do something about those very steep fees.

Beddie

Please don't pay those very high fees. There are some great ideas from other posters here that would suit your needs and be much cheaper.

If you really cannot make your mind up - £9000 in each!