July 1st sees the introduction of the New ISA, boosting your tax-free savings allowance to £15,000 every year. Yet with banks cutting their interest rates, a Cash NISA may not be the best place for your money.
New ISAs simplify the rules around tax-free saving. You can save £15,000 in a Cash NISA, a Stocks and Shares NISA or any combination of the two. Understanding the difference between the two types of NISA is crucial to meeting your financial goals. Our NISA Quick Facts guide covers the important changes in detail.
According to our recent research, 44% of Britons intend to save in cash alone*. Yet, in doing so, they could be reducing the value of their savings over time and falling far short of their goals. Many savers forget to take the effect of inflation into account when planning for their future. With the inflation rate at 1.5%, any interest rate below this would give you a real-terms decrease in the monetary value of your savings. The Government’s target for inflation is 2%, so you’d need to find an interest rate much higher to see any real growth in your savings.
While New ISAs are intended to benefit savers, it seems the banks have started penalising them by cutting their interest rates on Cash NISAs. The top rate of interest available on an easy access NISA is 1.75% – only just beating inflation. You can get a fixed rate Cash NISA that offers 2.85%, but will need to lock your money away for five years.
It’s clear that if you intend to invest solely in Cash NISAs, where interest rates are so low, your savings could actually lose more value over time than they earn.
Generally speaking, NISAs are a great way to get more for your money and reach your financial goals, and we support the recent change. The key is to invest wisely. You can save your £15,000 tax-free allowance in a Stocks and Shares NISA and benefit from a long-term return above inflation. Despite only 5% of Britons planning to invest in stocks and shares alone*, they have consistently performed better than cash. In the 2013/14 tax year, the average Cash ISA returned 1.69%, while the average Stocks and Shares ISA retuned 9.42%.
Investing in a Stocks and Shares NISA is simpler, and cheaper than you might think. Plus, you can use our impulseSave® technology to top-up your NISA on-the-go with just £1. We offer a wide range of investment options to match your personal attitude to risk and financial goals.
The introduction of NISAs is a great time to take control of your finances and start making real progress towards your goals. If you’ve always saved in a Cash ISA, consider making the switch to a Stocks and Shares NISA. You’ll get a better potential return on your money.
Our White Paper, Tackling the Savings Gap, covers the introduction of NISAs in more detail. We surveyed over 2,000 people to get their first impressions and the responses are fascinating. We know the road to changing the UK’s savings habits is a long one, but we’re determined that everyone should have access to the information they need to make the right choices about their future wealth.
* All statistics sourced from Tackling the Savings Gap.
Capital at risk, investments can fluctuate in value and investors may not get the amount back they invest. Tax rules can change at any time.
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