Finding The Best ISA For You
I often read about increasing household debt (excluding mortgages), and feel grateful to be in a position where we can make ends meet each month, and even save a bit too. There’s no denying that with all the fallout from the Election, Brexit and more, these feel like particularly uncertain times, and it becomes a major challenge to secure the financial future of our families.
One thing which appears increasingly elusive in the eyes of Brits is retirement, with recent research showing that 21 per cent of us believe retirement won’t be possible until at least the age of 70 – not to mention the fact that the survey also revealed how worries about retirement are a great source of stress.
Whether it’s retirement, day-to-day finances, or saving for your children’s futures which concerns you most, it remains important to squirrel money away as much as possible. But it isn’t just what you save – it’s where you put it that counts too. In a world of crazy-low interest rates, and plummeting returns on savings, maximising savings income is easier said than done. But, with a few shrewd choices, you can get yourself onto the right track.
The cash ISA is an old favourite among UK savers, but the truth is that the rates they offer are pretty derisory these days, and are continually plummeting to record lows. That said, they remain a popular option, and you can get in the region of 1 per cent in interest on an easy access cash ISA from the likes of Paragon Bank.
However, some current accounts are offering better deals, like the Santander 123 Account, which pays 1.5 per cent. Tesco pays 3 per cent on the first £3,000 you put in, although if you and your partner each have an account, it’s effectively £6,000. Switching is very easy too thanks to new legislation passed a few years ago, and, to make it a bit sweeter, banks like First Direct offer £100 in cash for switching to them.
Pensions remain a very important part of long-term savings, and rightly so. However, a new type of savings option has emerged known as the Lifetime ISA – the first of which launched very recently. This is available to anyone between the ages of 18 to 40, and for every £4 you save, the government contributes £1 (bonus capped at £1,000 per year). You can contribute to your Lifetime ISA until the age of 50 too, so in theory, there is £32,000 in ‘free money’ on offer if you save the maximum amount over time.
You can then access this money, along with the bonus, when you turn 60. If you want to take it earlier, beware… there are hefty penalties, and you forfeit your bonus (unless it is for the purposes of buying a first-time property).
Innovative Finance ISAs
Another new addition to the savings game is the Innovative Finance ISA, which is a special type of ISA offered by peer-to-peer lending platforms. This involves lending your money directly to consumers who need a loan via an online platform; they then vet the quality of these borrowers for creditworthiness. You are then paid back monthly for providing these loans, and can expect a return of up to 5 per cent. The Innovative ISA, as it happens, offers a means to protect this income from tax.
It is worth noting though that, despite the good record of FCA-regulated platforms in the UK, and the measures they put in place to protect their lenders from borrower default, any losses are not covered by the Financial Services Compensation Scheme.
There are also other options, depending on your priorities, such as the Help to Buy ISA, or Junior ISAs to help your children get into the swing of things from an early age. But whichever route you decide to look into, and perhaps pursue, I think the most important lesson is this: don’t simply accept the status quo. Even in this low-interest, low-yield environment, there are many ways to ensure that your savings don’t sit idle. There is another way to think of it too… you work very hard for your money. Isn’t it only right that your money then works had for you?