S&S ISA versus High Interest Savings Account

smilingfish

My fiance is looking to save a regular though initially, relatively small amount (£100) every month after putting her £3600 allowance into a cash ISA. She took some financial advice from an advisor who suggested putting the money into a Skandia MultiISA fund.

Looking at the key facts a 4.5% initial charge will be taken and the projection states that if the fund were to grow at 7.0% the total charges and expenses would have the effect of reducing the growth to 3.9%.

Given that she is a low rate tax payer and that she can get a 6.5%+ interest rate with a regular savings account surely the fund would have to perform significantly better than the 7.0% (ie. into double figures) to beat the savings account by any noticeable amount. Is this kind of return what we should actually be looking for from an S&S ISA?

As a result of these large intial charges can anyone give me good reasons to opt for the ISA fund rather than a decent, possibly fixed rate, savings account?

Any thoughts appreciated!

mw2655

you can probably save the initial charge by using HL..

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


i've used them for my S&S ISA for the last 2 yrs and found them to be very good.

cheers matt

dunstonh

you can probably save the initial charge by using HL.

You will save the initial charge if you use HL but you will lose FOS protection and if you rely on the advice and servicing of the adviser to make investment decisions then you wont get that either.

Given that she is a low rate tax payer and that she can get a 6.5%+ interest rate with a regular savings account surely the fund would have to perform significantly better than the 7.0% (ie. into double figures) to beat the savings account by any noticeable amount. Is this kind of return what we should actually be looking for from an S&S ISA?

Basically, you at the moment you are trying to compare car and petrol to see which one will get you to the destination. A stocks and shares ISA is just a tax wrapper. it doesnt make or lose money. It is a container for investments and there are tens of thousands of options you can put inside that ISA. In the case of Skandia multifunds, being a fund supermarket, they have around 1000 fund options. Those fund options cover all risk profiles from very low to very high risk.

As a result of these large intial charges can anyone give me good reasons to opt for the ISA fund rather than a decent, possibly fixed rate, savings account?

My ISAs since 1995 (Peps included) are running at an annual average of 19.6% at the moment. That a good enough reason? However, thats my risk profile and my investments. You havent mentioned anything about the investments being used so we cannot really say. However, assuming it is stockmarket you would typically be looking for double digit returns as a long term average with decent quality investing and perhaps 7-8% with basic unmonitored investing. Nothing is of course guaranteed.