If you’re unsure about what to do with your hard earned cash, you’re not alone: Increasingly, UK consumers are shying away from stock markets, with private stock ownership dropping from its 54% high in 1963 to a current low of just 10%. Cle... Read more
If you’re unsure about what to do with your hard earned cash, you’re not alone: Increasingly, UK consumers are shying away from stock markets, with private stock ownership dropping from its 54% high in 1963 to a current low of just 10%. Clearly, the multitude of crises and disruptions have made stock markets far less attractive, with most increasingly perceiving them as less and less secure.
The benefits of Cash ISAs
ISAs – Individual Savings Accounts – are a far more compelling way to not just tuck your money away, but to actually accumulate wealth over time. There are two different types of ISA account: Cash ISAs and Stocks & Shares ISAs. Let’s have a look at them in turn.
Cash ISAs: Accumulating Interest
Cash ISAs are the follow-ups to the familiar Personal Equity Plans (PEPs) and Tax-Exempt Special Savings Accounts (TESSAs). Simply put, a Cash ISA is a savings account subject to specific tax breaks and incentives: All the money on a Cash ISA as well as the interest paid on the amount are exempt from taxing. Although, with most Cash ISA accounts, you will be able to withdraw funds even on a short notice, the benefit of allowing the interest to accumulate is the main advantage of Cash ISAs. As someone said, for example, has pointed out, if you were the holder of a Cash ISA account with £70.000 to your credit and your current interest rate were 4,5%, then your yearly earnings would amount to a formidable £3,150. And amounts like this are by no means reserved to the wealthy.
Rules of Cash ISAs
There are some rules with regards to Cash ISAs which you’ll need to take into account. Most importantly, there is a limit to how much money can be stored away in a Cash ISA each year. Currently, there is a policy to roughly tie the annual rise in these limits to the rise in the inflation rate, thereby resulting in a maximum of £5,340 for the 2018/2019 tax year. If you fail to meet the target within a particular year, then you can not make up for it with a higher payment in the following period. Likewise, you can access money from a Cash ISA account, but you can not replace it at a later date: If, you were to urgently require the imaginary £70,000 mentioned above, for example, then you could withdraw the amount – but you could not replace it in the future to return to your former high interest payments. The amount would be lost and you’d require several years to restock your account.
Different Types of Cash-ISAs
If you are aware of these fairly simple rules, Cash ISAs can be an extremely valuable part of your financial strategy – in fact, they are so obviously useful that it would be unwise not to make use of their benefits. Before investing in Cash ISAs, however, it is essential to first decide which type fits your preferences: A variable rate Cash ISA, a fixed rate Cash ISA or a regular savers model. While regular savers are a monthly payment plan, the first two are self-explanatory, really, and simply define the kind of interest rate applying to a particular account. As with most financial instruments, fixed rate Cash ISAs are usually your safer option, but can, on the other hand, make you loose out on the higher returns of a flexible rate account, should interest rates go up. In his article, some people currently mostly recommends fixing a rate for a long period of time, if you’re pretty sure you won’t be needing the money on the Cash ISA account. This, after all, combines the advantages of both models.
When someone recently made public their handling fees for some of their Cash ISA accounts, the high hidden costs sent ripples of disgust and anger through the community. And yet, there is no reason to dismiss Cash ISAs in general based on these findings. Rather, they still remain a highly effective and secure way of securing your funds. If, meanwhile, you should be looking for a higher-yielding alternative, Stocks ISAs may be best for you. These will be discussed in a separate article.