If you have a cash ISA, then you are to be applauded for putting some savings away for your long-term needs. But right now, those prudent folks stashing some cash away for a rainy day are being punished for doing so, and that doesn’t seem fair.
But what do I mean? Well, even though the UK annual rate of inflation has dropped to 2.4% in September, even the best cash ISAs available today can’t match it. With that imbalance, the real-world value of your money is eroding while just sitting in a so-called investment. Still, at least you won’t be further punished by being taxed on your losses — big deal!
If you look beyond the top rates, the picture becomes even more shocking, as I found when I did some searching using the UK’s best-known comparison websites for variable-rate cash ISAs.
Best cash
The best that Moneysupermarket.com could find was 1.95% from the Vernon Building Society. But there’s a drawback in that you have to open the account at a branch and you can only save a fixed, regular amount.
The next best are way behind, with Leeds Building Society and Virgin Money both offering 1.38% (though Virgin only allows two withdrawals per year). Then it gets lower and lower, and there are cash ISAs from some of our top high street banks paying as little as 0.2%!
Using Comparethemarket.com and skipping past the “Help to Buy” (or Lifetime) ISAs, the same Leeds Building Society offer of 1.38% is the best I can find.
Gocompare.com has a eclectic range of local building society accounts offering around 1.5%, but every one I looked at had some sort of restriction. Interestingly, Gocompare lists a Marcus easy-access savings account from Goldman Sachs, which is a challenger bank thing, but even that only offers 1.5%.
If you dig around you can find various fixed-rate cash ISAs paying a little over 2%, but all the ones I checked had restrictions on things like when you can withdraw money, interest penalties when you withdraw, and all manner of things that make a sorry mess of something that was supposed to be simple to do, and easy to understand.
Stocks & shares
By far the best alternative is surely a stocks & shares ISA (where stocks and shares are the same thing, and just more annoying jargon). AÂ stocks & shares ISA is just an account through which you buy and sell shares, with the ISA wrapper added so that you pay no tax on anything you take out.
Most providers will allow you to invest lump sums and to make regular monthly savings. You just keep saving until you have enough to keep the fixed cost per purchase reasonable, and that can be as little as £500 with today’s low costs, and then buy… what?
Well, I might sound glib here, and the idea of buying shares can be a challenge. But if you stick to top, well-known, FTSE 100 companies paying decent dividends, I’d say it takes very little expertise.Â
If you split your money between, say, Royal Dutch Shell (with forecast dividends of 5.7%), Aviva (6.7%), National Grid (6%), GlaxoSmithKline (5.6%) and WPP (5.6%), I’d see that as the beginnings of a safe, long-term portfolio which is very likely to beat any cash ISA hands down.