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How to pick…..An Isa

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Written by:
17/11/2014
The end of the tax year is just a few months away, and with it dawns another new Isa season. How can you ensure you end up with the right one?

1. Pick whether you want cash or stocks and shares

Cash

Isas are simply a wrapper. It is what goes in it that counts. If you only want to hold cash in your Isa, the selection process is more straightforward. Go for the best rate from a reputable provider. Comparison websites such as http://www.moneysupermarket.com/savings/cash-isas/ to guide you through the process.

A few points to bear in mind:

– Comparison sites do not include all providers, so it is worth cross-referencing with cash Isa providers listed in the personal finance pages of the broadsheet newspapers.
– Exercise caution on ‘teaser’ rates, which start high and end low
– Make sure you are covered by the Financial Services Compensation Scheme
– If you want to include stocks and shares in your Isa, or think you might want to do so at a later stage, you will need an Isa provider that can accommodate that. In practice, it can be easier to start with a provider who offers a ‘NISA’ (new Isa), which can accommodate both types, so you retain flexibility.

Stocks and shares Isas

– Pick a provider or a platform

The most flexible type of Isa are those that are provided by the consumer finance platforms such as Hargreaves Lansdown, Alliance Trust, or Interactive Investor. With this type of Isa (usually called a NISA), investors can hold cash, shares, funds, bonds or investment trusts. They can also switch between different investments without incurring any fees.

However, Isas are also provided by individual fund management groups. This used to be the cheapest way to buy funds, but this is no longer universally the case and investors need to check what they are paying. That said, a number of the investment trust companies – Baillie Gifford and Witan, for example – offer good value share schemes, with low minimum investment levels.

– Pick the investments to go in it
Once you’ve signed up with an Isa provider, you have the thorny issue of which investment to choose. Everyone’s investment needs are different, but you should try and have a clear idea about what you want to achieve: Is it an income? Is it long-term capital growth? In practice, most Isa providers will have tools to help you decide on the best option – whether that is ‘best buy lists’, or decision trees.

A few points to bear in mind:

– Do not just pick yesterday’s top performing stock or fund. Remember that you are looking for an investment that still has scope to grow; if a fund is at the top of the performance tables, the chances are that you have missed its strongest growth period.

– Watch out for costs. The average collective fund investing in the stock market willhave annual charges of around 0.75%, the average ‘passive’ fund (which just seeks to replicate the performance of an index) will have charges of around 0.25-0.5%. You shouldn’t be paying more than this. 

– Use expert opinion – check out recommendations from experts in the press or online. In general they will be safer options than taking a recommendation from a cabbie, or your best mate.

http://www.hl.co.uk/partners/your-money/isa?utm_source=incisive&utm_medium=affiliate&utm_campaign=Incisive+ISA+AFINC&theSource=AFINC&Override=1

 

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