No interest in ISAs – Think outside the box
Speaking on the BBCs 5Live radio programme this morning, (“Wake up to Money” – there are better things to wake up to I’m sure) I was asked to talk about Individual Savings Accounts. Are they a good idea? The short answer is yes.
Try not to categorise ISAs as merely a financial product like a unit trust or a particular bank account; instead an ISA is merely a tax wrapper that can be applied to either cash, stocks and shares, or a combination of the two. If you have cash, stocks or shares that are not sitting inside an ISA tax wrapper, then what are you waiting for?
Chatting generally to other guests on the show I discovered that even higher earners with cash in the bank were not making use of the annual ISA allowance. OK, it might not rock their boat to chase around for a £7,200 deal, but ISAs are now 10 year old, and over that time it would have been possible to shelter up to £70,200 from the tax man. Half of which could have been in cash.
The problem that many of clients are facing right now is how to secure a good rate on existing ISA cash. Whilst it is possible to get several reasonably good interest rate deals, it is usually only for new money and not for existing ISA cash, so you cannot transfer ISA money from one provider into a new account. Seems to me that if you have no new money to commit to ISAs this year, but your existing ISAs are only earning 0.1% or similar, then why not simply cash in £3,600 of existing ISA money and then treat this as new money into a new ISA. If you are not going to fully use this year’s allowance then why not recycle previous allowances?
But perhaps the time has come to think about the longer term. Too much ISA money held as cash isn’t going to do you too many favours in the long run, especially if inflation does take a hold next year or the year after. You could consider switching ISA cash into other eligible investments. Corporate Bonds (especially AAA rated) are looking attractive at the moment, and within an ISA the income is entirely tax free. With income yields of around 8% and depressed capital values these might be a good medium term play.
Finally, if you have existing shares or unit trusts and are currently sitting on capital losses, why not crystalise the loss to use against future gains, and then re-invest within an ISA, the future gains on this portion of your money will be Capital Gains Tax free in the future – until the government change the rules that is.
Hurry through, there’s very little time left.
