Considering your cash ISA - Census Financial Planning
Cash ISAs are some of the most straightforward investment products on the market. They are designed to appeal to investors who want to take less risk, but also want their cash savings to work as hard as possible in a tax efficient way.
At one end of the scale, if you can only invest small amounts, need full access to your money at any time and need to run a debit card from the account, this flexibility may come at the price of lower interest rates. However, you will still have the benefit of paying no tax on that interest, which will be of particular benefit to those paying tax at 40% or 50%. However, at the other end of the scale, you may find that by tying your money up for a longer period – perhaps placing it on 60 or 90 days’ notice – you could earn a higher rate of interest. Equally, online-only accounts will often pay a higher rate of interest.
Whichever approach you choose, it is worth keeping an eye on interest rates, particularly if you are taking advantage of an introductory bonus or a short-term guarantee. Typically, these expire and can leave you with a lower or less competitive interest rate afterwards.
As an alternative to building society and bank accounts, cash ISAs can also be invested in certain National Savings & Investments accounts. These are backed by HM Treasury and can be invested in money-market instruments.
At the more exotic end of the market, there are also some structured products that can qualify for ISA investment. They are not strictly ‘cash’, but may offer some form of capital protection. However, some use complex market instruments that are not always easy to understand and can be riskier than they initially appear. They are unlikely to be a straight substitute for a cash Isa, but can offer a more managed risk/reward profile for a certain type of investor.
Paul Dixon FPFS
Chartered Financial Planner
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Census Financial Planning is an independent financial planning practice providing a professional and comprehensive financial planning service, located on the Lisburn Road in Belfast, Northern Ireland.