Cash ISAs now pay an average 0.42% in interest*. And that means an automatic annual loss of purchasing power once rising prices are factored in.
Some Cash ISAs return as little as 0.1% a year – that's £5.10 on a £5,100 payment and a tiny annual tax benefit of just over £1 for a basic rate taxpayer.
Even the top-paying instant access ISA which accepts transfers in only offers 2.75% ** - again less than the rate of inflation.
But for long-term savers who are tired of microscopic interest rates, there is a little known option.
They can transfer underperforming Cash ISAs into stocks & shares ISAs – without affecting other ISAs or reducing this year's £10,200 allowance.
“Savers now have a choice,” says Anthony Yadgaroff, Managing Director of Mayfair-based discount broker Allenbridge. “They can see their savings erode with inflation which stood at 4.4% in March, according to the retail prices index. Or they can transfer those poor performing ISAs into stocks and shares ISAs which have a chance of longer term success.”
Over the past year, only a small number of Cash ISAs has given a return after inflation, while the average UK Stocks & Shares ISA has gained 24%. The only Cash ISAs that currently offer any significant protection against rising prices demand a long term lock-in of up to five years.
A comparison between a top performing fixed rate Cash ISA, an average Shares ISA and a top performing Shares ISA was carried out by Allenbridge and the results are as follows:
|
Type of ISA |
Return over 5 years |
Return on £3,600 invested in 2006 |
|
Top performing
Cash ISA |
20.8533% |
£4,350.72 |
|
Average |
28.4% |
£4,622.40 |
|
Top performing UK
Shares ISA |
102.7% |
£7,569.72 |
The percentage return used for the Cash ISA is the best that was on offer for that year****
“Obviously, there is a risk in moving away from cash, but that has to be set against a guaranteed loss due to inflation from the vast majority of cash ISAs. And that will still remain true if inflation falls back, as many forecasts suggest. Over the longer term, Shares ISAs have given better returns than deposits; of course, that may not continue. Shares can go down as well as up, and past performance is not necessarily a guide to the future. So it has to be emphasised that switching into equities and bonds is for longer term money – not cash that might be needed soon, as the transfer process cannot be reversed,” adds Yadgaroff.
The Allenbridge website has model portfolios ranging from cautious to adventurous.
Further information from:
* source: Bank of England
** source: moneysupermarket
*** source: moneysupermarket.com/savings/
**** source: Allenbridge Research
Q&A on ISA transfers
Q. How much can I transfer from Cash ISAs to Stocks & Shares ISAs?
A. You can transfer some or all of the money you have saved in previous tax years without affecting your annual ISA investment allowance.
Q. What about old Tessa money?
A Savings in a ToISA (Tessa only ISA) are treated identically to those in Cash ISAs.
Q Must I move all my Cash ISAs?
A. No. You can select the worst paying accounts if you wish. And you are not obliged to close the account.
Q Can I move money that I've put in already for this year?
A. Yes. Savers can transfer money saved in the current tax year but it has to be the whole amount saved so far in that Cash ISA. This does not affect any other ISA decision.
Q. How do I transfer the money in my Cash ISA to a Stocks & Shares ISA?
A. You do this in the same way as moving a Cash ISA to another ISA provider. Choose a new Stocks & Shares ISA provider (or a platform such as Cofunds or Fidelity Funds Network) for your ISA. Then ask the new provider to arrange the transfer. If you haven’t yet decided on which unit trusts to invest in, you can elect to ‘park’ your money in a Cofunds ISA Cash Reserve or Fidelity FundsNetwork’s ISA Cash Park account while you make your decision.
Q. Can I do the transfer myself?
A . No. You must not withdraw the money and then invest it a Stocks & Shares ISA yourself, as this will count as a withdrawal and invalidate its tax status. It would also count against your annual allowance.
Q. Can I transfer the monies I have invested in my stocks & shares ISA to a Cash ISA?
A. No. You can't reverse the switch even if the money originally came from a Cash ISA.
Media enquiries
Contact Details:
Kate Davidson, Public Relations and Media Manager at Allenbridge Group PLC.
Mob: +44 (0)78 1462 4161
Tel: +44 (0)20 7409 1111
Kate.davidson@allenbridge.co.uk
http://www.allenbridge.co.uk/
Anthony Yadgaroff, Managing Director at Allenbridge Group PLC.
Tel: +44 (0)20 7409 1111
Anthony.yadgaroff@allenbridge.co.uk
Notes to Editors:
Allenbridge Group PLC is a rare beast in the investment jungle, a Mayfair-based discount broker that also advises large FTSE corporate pension funds and global banks. Founded in 1985, it carries out specialist research and consultancy, analysing investment manager performance across a wide range of funds: Unit Trusts, Investment Trusts, Venture Capital Trusts, Enterprise Investment Schemes, Charities, Hedge Funds, Funds of Hedge Funds and institutional Pension Funds.
In addition to providing comprehensive advice and strategic investment consultancy to leading institutions, Allenbridge also offers monitoring services, valuations and its specialised AllenbridgeCare service to individual investors on investment products and tax-shelter vehicles.
Allenbridge’s private investor division serves over 14,000 clients; retail and institutional funds under advisement exceed £25 billion.