Get the most from your money: know your New ISAs
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My husband and I have been looking around at saving accounts recently – at the New ISAs more specifically. We like to save for a rainy day so a long-term, tax-free account sounds ideal.
If you haven’t heard of New ISAs (also called NISAs), don’t worry. What it essentially means is that you can save more money, tax-free. The government introduced them at the start of this month.
When it comes to savings, my husband likes to ‘play it safe’. He wants to know that any money we save is guaranteed to stay in our account and gather interest, even if said interest is only a tiny amount.
So he likes the idea of cash ISAs.
I, on the other hand, don’t see a problem with ‘raising the stakes’. An investment ISA might be perceived as riskier – there is a small chance of ending up with less money that you paid in because your savings are being invested in stocks and shares – but the rewards can be greater.
I appear to be in the minority with this sort of attitude though. Scottish Friendly, a UK mutual life and investments firm, says three cash ISAs are opened for every one investment ISA.
But here’s the thing, interest rates for cash ISAs are much lower than for investment ones. It’s claimed that some providers have lowered their cash ISA interest rates even more because of the launch of these New ISAs.
— Scottish Friendly (@scotfriendly) July 2, 2014
It means you’re losing out on valuable interest.
Before these new accounts came along, savers could squirrel away up to £11.880 a year into an ISA. It could be saved in an investment ISA or split between an investment and cash ISA. However, only £5,940 was allowed to go into a cash one.
With the New ISAs, that limit has been upped to £15,000. Savings can also now be split between investment and cash ISAs in any way you want.
I know my husband would prefer to take advantage and save more into a cash ISA. But, with many providers lowering their interest rates, it just doesn’t sound like a tempting option.
Scottish Friendly are sharing some great tips and articles on twitter that I’m finding helpful in understanding more about these New ISAs.
I think the perfect compromise for us is to find a balance and spread our savings between the two different types of ISA accounts. That way, we have some guarantees, but should be able to take advantage of bigger interest returns, especially with this new and improved £15,000 ceiling.
What would you do?