An ISA (Individual Savings Account) can be a very good investment opportunity, but are there any other options that may perform better?
natalie rhea riggs
Cash ISAs are no longer the favoured investment option for many people. In fact, the number of people starting new cash ISAs has decreased dramatically, as lower interest rates and inflation have made saving cash a less sensible option. Cash ISAs have not been performing well, simply because the combination of low interest and high inflation means the money you save could be worth less at the end of the year than it is now.
However, while people are less likely to choose cash ISAs, increasing numbers of people are opting for investment ISAs instead.
Cash or investment ISA – what’s the difference?
What’s the difference between the cash ISA and the investment ISA, and why does it matter? The primary difference is that while a cash ISA is designated for the purpose of saving cash money; with an investment ISA, the money you deposit is earmarked for investment into stocks and shares. This means that there’s a much bigger earning potential with an investment ISA if you’re willing to shoulder the risks that come with buying into the stock market.
There are alternatives to the ISA that could be a good option for people with the right mindset. For instance:
Become a buy-to-let landlord
This can be a very rewarding investment, but the downside is that it’s very difficult to recover your investment money if your need it back quickly. Also, Buy To Let mortgages these days require a high, initial deposit – around 20%, which could make you think twice before investing in property.
Invest in gold
Since the turn of the millennium, gold has been a consistently high performer, but the downside is that the precious metals market tends to be volatile. If you want to invest in gold it’s important that you can keep your nerve if the market takes an unexpected dip.
A high-risk investment, but offering 30% income tax relief under some circumstances, which can make it an attractive prospect.
Spread betting can be extremely lucrative, but it’s definitely not for the faint-hearted. While you could make a killing in a few minutes, you could just as easily lose heavily in the same amount of time.
Overall, the investment ISA appears to offer a good combination of risk and reward meaning it continues to be a highly worthwhile prospect. With this kind of ISA you can invest up to £20,000 in the 2018-2019 tax year, and any returns you make incur no income or capital gains tax. This is your ISA allowance.
Choosing an ISA
Even if you’ve held a cash ISA before, it can be a bit overwhelming when you’re faced with choosing where to set up an investment ISA. The amount of choice you have in terms of investment funds and individual investments is enormous. For beginners, it’s a good idea to research various investment funds available through ISAs. This is a collective investment into upwards of 50 different companies and means that your investment isn’t affected too badly if any single company’s performance starts to slide. You can also look for an ISA which splits your ISA allowance between a stock and shares ISA and a Cash ISA if you prefer to balance the risk.