A Stocks and Shares ISA is my way to ensure I can retire early, and I’ll explain today how and why savings accounts and bonds are making you poorer. News in October 2020 that NS&I — National Savings and Investments — had slashed its interest rates was a blow to many long-term UK savers.
The government-owned savings bank has been a staple of British life since it was created in 1861 as the Post Office Saving Bank.
But recent cuts mean, in my opinion, that this institution should be consigned to the bin of history.
Premium no more
From 24 November 2020 its Premium Bonds will pay 1% instead of 1.4%. Income bonds drop from 1.15% to a next-to-nothing 0.01% and Junior ISAs fall from 3.25% to 1.5%.
Why has this happened? Because central banks like The Bank of England have dropped the interest rate they pay to financial institutions for holding cash to historic lows.
And these organisations are quick to pass their losses on to customers. It’s happened in most countries in response to the economic catastrophe caused by the pandemic.
Try a Stocks and Shares ISA instead
I believe choosing my own investments in a Stocks and Shares ISA is the best way for me to secure my financial future.
Any dividends I get paid, or gains from share price rises, are tax free, just like the tiny gains from NS&I.
And for share investors, it’s not necessary to spend hours raking through company reports and interrogating financial statements, if you don’t want to. You can pick popular funds or ETFs in a Stocks and Shares ISA. These do the research and investing for you and leave you to get on with your day.
Why I changed
It took me quite a while to get my head round the concept of not leaving my money in savings accounts or tax-free Premium Bonds. The Stocks and Shares ISA wasn’t even on my radar.
It was drilled into me as a child that I should always save money, probably because I and my brothers and sister had a modest upbringing where cash was often scarce. Investing was only for the rich and powerful, none of whom I knew, sadly.
But the rates on offer for savers are now so low that inflation reduces the future value of any money to less than I started with.
Now I set aside around £250 a month to go straight out of my bank account into my Stocks and Shares ISA. It’s not a king’s ransom and for me, it’s affordable.
What I get
So what have I got in my Stocks and Shares ISA? And what percentage do I make?
Through a combination of steady, generous yield FTSE 100 shares like Legal & General, balanced, high-margin FTSE 250 shares like Games Workshop and fast-growth AIM shares like Open Orphan and Team17, I’ve managed to bring in a 20% return on my cash in the last 12 months.
I’m not saying I’ll get as much as 20% every year. That’s down to the investment choices I make, and a healthy dollop of luck.
But a Stocks and Shares ISA is certainly a better place for my hard-earned cash than wasting away at 1% or less in a savings account or income bond.