If your money is currently in a cash ISA, swapping to a stocks and shares ISA could potentially give you much better long-term returns. Providers are currently offering top rates of around 2.5% for instant access cash ISA accounts, meaning your money is barely keeping pace with inflation. Stocks and shares have generally offered greater returns than savings accounts in the past. This is especially the case over longer investment periods.
As an example, the chart below, shows that an investment of £1,000 a year in our UK Index Trust from December 1995 would have generated just under £13,500 more than the average savings account over the last 18 years.
However, unlike savings accounts, the value of investments may fall as well as rise, which means you may get back less than the amount you invest. This can be seen by looking at the fluctuations over the last five years shown in the table below.
|Dec 08 to Dec 09||Dec 09 to Dec 10||Dec 10 to Dec 11||Dec 11 to Dec 12||Dec 12 to Dec 13|
|UK Index Trust percentage change*||29.1%||14.4%||-5.1%||12.3%||20.1%|
|Savings account percentage change**||0.7%||0.7%||0.8%||0.8%||0.6%|
Source: Lipper - as at December 2013.
*These figures take into account the annual management charge and extra expenses, and assume any income is reinvested after tax.
** We’ve used Moneyfacts Instant Access £2,500 which is a representative bank account as a basis for the savings account.
Past performance is not a guide to future performance.
ISA transfers allow you to move your cash ISA and/or stocks and shares ISA from one company to another whenever you want. You can transfer
To make sure you keep your tax benefits, you will need to arrange a transfer rather than just taking your money out and reinvesting. Money in a stocks and shares ISA can only be transferred to another stocks and shares ISA. But your holdings in a cash ISA can be transferred to another cash ISA, or to a stocks and shares ISA. The transfers should be done in a way set down by HM Revenue & Customs, using a 'transfer history form'.
If you transfer an ISA you’ve paid into during the current tax year to a new provider, you must transfer the whole balance. For ISAs from previous tax years, you can choose how much to transfer.
A stocks and shares ISA is a good way of investing for the long term while making the most of tax benefits. It gives you a chance to spread your risks – for example by spreading your money between funds with different investment strategies such as index tracker funds, actively managed funds and /or mixed investments.
The independent Money Advice Service set up by the Government suggests that you should at least have three to six months of essential outgoings available in an instant access account to help cover you for emergencies.
If you have savings over and above this amount, and you don’t have debts, it can be a good idea to find a home for your “non-emergency” savings that could give you a better return. Unlike a cash ISA, a stocks and shares ISA should be considered a medium to long-term investment, ideally at least five years. Please bear in mind that once you transfer from a cash ISA to a stocks and shares ISA you can’t go back and the value of investments may fall as well as rise, which means you may get back less than the amount invested.
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