At the moment we don't always have a great deal of money left over at the end of the month to put into savings. But when we do, we always put it into our ISAs. It's the obvious place to save money without needing to worry about paying tax on it. Until the 1st July 2014, the maximum amount that could be invested in a cash ISA was £5,940, increasing to £11,880 if you invested the rest into a stocks and shares ISA.
However from the 1st July 2014 this all changed. ISAs are now known as New ISAs, or NISAs, and have an increased annual allowance of £15,000, which can be saved either entirely in cash, in stocks and shares, or in any combination of the two. Existing ISAs will change to NISAs, and any contributions made since 6th April 2014 will count towards the 2014-15 allowance.
In theory this is great news because it offers opportunities for larger tax free savings. But Scottish Friendly has warned that savers need to be wary of automatically holding all their ISA funds in cash and instead to consider the alternatives that are available.
The reason for this is that banks and building societies have already started lowering their interest rates, rates that are already low, in anticipation of the NISA launch, and it's important to think about whether savers that invest all their money in cash are really receiving the best deal.
Neil Lovatt, Scottish Friendly’s Director of Financial Products, said:
“For every one investment ISA taken out, three cash ISAs are opened.
“Cash is easier to understand as it offers security and access to the savings without penalty that investment ISAs do not. People are being put off by what they think is pure equity investments and instead are opting for accounts that offer poor returns on their cash.
“The changes introduced in the budget gave savers a glimmer of hope and incentivised people to put more money aside each month. However, the Cash ISA market has not risen to the opportunity, instead choosing to offer low rates of interest on cash ISAs and in some cases actually reducing their rates for fear of overly high inflows”.
I must admit that we've only ever invested money in a cash ISA. Like many people, we want the security that the cash ISA offers, and we all know that with a stocks and shares ISA the value of an investment can go down as well as up. But if you are prepared to look at the long-term picture when it comes to savings, there are ways of investing that will still mean that your savings are secure.
So if you have some spare funds to invest at the moment don't necessarily think that a cash NISA is the best way to see some return on your investment, it's worth doing some research into the alternatives. You can find out more information in the video below:
This is a sponsored post in collaboration with Scottish Friendly. Find Scottish Friendly on Twitter here.