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The best Isas for 2013
The best Isas for 2013
ISAs are a fantastic tax break so if you have any spare savings, it makes a lot of sense to open one. Before we look at the best ISAs on the market right now, let’s just do a quick recap of the rules.
There are two types of ISA: Cash ISAs and Stocks and Shares ISAs. Cash ISAs are effectively tax-free savings accounts; stocks and shares Isas are tax-free wrappers in which you can place investment funds, individual shares, bonds and a few other investment products.
In the current tax year, the maximum investment in a Cash ISA is £5,640. If you don’t open a Cash ISA, you can invest up to £11,280 in a Stocks and Shares ISA.
If you’ve already opened a Cash ISA, take the total amount you’ve placed in the Cash ISA and subtract that from £11,280. That gives you the amount you can invest in a Stocks and Shares ISA this year. So if you’ve invested £4000 in a Cash ISA, you can invest up to £7,280 in a stocks and shares ISA.
These allowances are pretty generous. Especially for stocks and shares.
Stocks & Shares
Indeed if you have some spare cash that you won’t need for a while, we’d urge you to think seriously about opening a Stocks and Shares ISA.
That’s partly because the interest rates on Cash ISAs are disappointing at the moment. Indeed rates are low on pretty much all savings accounts, and sadly it doesn’t look like things are going to get better any time soon.
The other important issue is that even in periods when savings accounts are paying higher rates of interest, stocks and shares still tend to perform better over the long term – five years or longer.
Obviously, there are no guarantees with the stock market, but all the historical evidence suggests that the longer you stay invested, the lower the risk that you’re taking.
So which Stocks and shares ISAs should you go for?
First, it’s worth remembering that the ISA itself is a wrapper. So you can get an ISA from a provider and you can then pick investments to go within that ISA wrapper.
There are plenty of good companies offering Stocks & shares ISA wrappers, but we’ll highlight three of the best known: the Fidelity Stocks & Shares ISA, the Hargreaves Landsdown Stocks & Shares ISA, and Alliance Trust Savings. Fidelity is especially attractive at the moment because it’s offering a 50% discount on charges for the first year you have the ISA, as long as you open your ISA by April 5th.
Once you’ve got your ISA wrapper, you have to decide what investments to put in it.
The simplest option is to go for an index tracker fund. These are funds that invest in all the companies in a particular stock market index. So if you put money into a FTSE-100 tracker, you’d effectively be buying shares in all the companies in the FTSE-100 index – the hundred largest companies on the London stock market.
We like index trackers because the charges are low and they often perform better than other types of fund which have higher charges.
The Fidelity Moneybuilder UK index fund is one of the best UK index tracker funds, it tracks the FTSE All-share index which comprises around 630 companies. The charges are nice and low at 0.3% a year, and you can invest in the fund through a Fidelity Stocks & Shares ISA.
And if you want to be more adventurous, you don’t have to stick with the Fidelity UK index fund. There are 1200 other funds you could choose to put in the Fidelity Stocks and Shares ISA, and a similar range if you go for an ISA from Hargreaves Lansdown or several other providers.
Although we’re big fans of Stocks & Shares ISAs, we know that Cash ISAs have their place. Some people don’t want to take much risk, or they’re too old to take much risk, or they may know that they’ll need the money for something else in the next two or three years.
So here’s a quick look at the best Cash ISAs on the market right now.
Over the long-term, the Halifax 5-year ISA Saver account is offering 3.1% a year in interest while the 3-year version of the same account is paying 3%.
The Santander 123 Exclusive Major ISA also isn’t bad as it’s paying 3% a year for a 2-year bond. However, you have to be an existing Santander customer to be eligible. If you’re not an existing Santander customer, you can get 2.8% a year.
There’s also a 0.1% bonus if the golfer, Rory McIlroy wins one of the big golf ‘major’ tournaments during the two-year period.
Moving onto instant access ISAs, you can get 2.5% a year with the Direct ISA saver account from Santander.
Peer to Peer
Finally, don’t forget about the peer-to-peer lending sites where you can earn as much as 5.8% a year on your savings. Granted, you’ll have to pay tax on the interest – unlike with a Cash ISA – but on the plus side, you’ll get a much better return than you’d get from a Cash ISA or a conventional savings account.