Save, make, understand money


Three reasons why there’s an ISA for every investor

Paloma Kubiak
Written By:
Paloma Kubiak

Over the past two years, the government’s expanded the number of products that come under the tax-efficient wrapper of the ISA. Maike Currie of Fidelity says that with greater choice, there’s an ISA for every type of investor and strategy.

1) The ISA novice

Many newbie savers opt for a cash ISA as their first stepping stone into the world of ISAs.

While cash might seem a safe and easy-to-understand option, you’re not going to get much for diligently saving each month. Fidelity’s calculations show that if a saver had invested £15,000 into the FTSE 250 index over the 10 year period from 28 February 2006 to 29 February 2016, they would now be left with £34,676.79. If, however, they had invested £15,000 into cash over the same period, they would be left with £16,055.95. That’s a very notable difference of over £18,000.

Keeping your savings in cash is a fool’s paradise. However, it may be that the sheer plethora of investment choice offered by a stocks and shares ISA is daunting. You might be convinced about the merits of investing in this vehicle, but find that you’re struggling to make up your mind about where to invest. This is where Fidelity’s ISA Cash Park can help. It can operate as a cash shelter for your allowance, giving you more time to decide where to invest the money put aside for your ISA.

2) Investing for a junior

Every parent wants to give their child the best start in life – but rather than spending on iPhones, puppies, ponies and other novelties your child may be pestering you to buy, you’re far better off putting something away in a Junior ISA (JISA).

While the JISA has to be opened by a parent or guardian, once it’s set up anyone can invest on behalf of the child. Grandparents, for example, could gift money to their grandchildren into a JISA and so reduce the inheritance tax bill due on their estate.

Money invested in a JISA is locked away until your child reaches 18, which might put some parents off. But if you think having children is expensive now – wait until they’re older and start calling on the Bank of mum and dad.

We calculate that paying for driving lessons, buying a first car and insuring it, funding a gap year and covering university tuition fees can cost you over £40,000. But if you save just £31 a week into a JISA as soon as your child is born, it can give them £41,886.06 over 18 years (based on growth and taking into consideration fees).

Increase your contributions to £78.46 a week and you could provide your child with a significant sum of £106,208.07 on their 18th birthday.

In the current tax year you can invest up to £4,080 into a JISA.

3) Property, pension or both?

With property prices rising at a rapid rate in recent years, getting a foot on the property ladder is getting harder – especially for today’s youth.

Figures from the Office for National Statistics show a record number of young adults live with their parents today – up by a quarter since 1996, as home ownership among the young continues to decline.

But we also know that as a population we’re growing older with life expectancy on the rise and we’re not saving nearly enough to ensure a comfortable retirement.

From April 2017, anyone under the age of 40 will be able to open a Lifetime ISA and save up to £4,000 each year. For every £4 you save, the government will give you £1 up to a maximum of £4,000 a year – that’s £5,000 you can shelter from the taxman every year, until you’re 50.

The thinking behind the Lifetime ISA is that you don’t have to choose between saving for your first home or saving for your retirement. You can use the funds to buy a first home worth up to £450,000 or the funds can be withdrawn from age 60 to help fund your retirement. If you require the money for any other purposes, a 5% charge will be applied. You will have the accessibility of an ISA with the added incentive to put something away for your golden years.

As it stands, there is an ISA for every reason and season of your life – make the most of it and remember you only have five days left to use this year’s tax free ISA allowance. Use it or lose it!

Maike Currie is an investment director for personal investing at Fidelity International.